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Canada: the good, the bad and the ugly

October 11, 2021
clock 5 MIN READ

SEI recently released its third-quarter Economic Outlook. A summary of the conclusions is provided below: 

  • The global equity rally stalled during the third quarter, with challenges accumulating as the clock ticked toward the final hours of September.
  • Canada’s comparatively strict lockdowns have helped slash the daily COVID-19 infection rate but also affected its economic growth rate. Granted, the pandemic itself and governmental responses to this black-swan event have played havoc with many measures of economic activity. 
  • The labour market continues to recover rapidly despite the uninspiring growth this year. At SEI, we expect the labour market to tighten further in both countries given the amount of fiscal and monetary stimulus that has been injected since the start of the pandemic.
  • As is true elsewhere, Canada is facing inflation pressures that its central bank and most economists deem transitory. The global supply-chain crisis has certainly exerted a powerful and mostly transitory impact on reported inflation rates in Canada and the rest of the world.
  • Luckily for Canada, it is a producing nation—not just a consuming one. We think the energy shortage (and the commodity squeeze generally) should be good news for the country’s equity market.
  • While supply chain disruption, lingering inflation and political dysfunction all present potential short-term headwinds, we believe that global economic growth will continue at a rate that significantly exceeds the sluggish pace that prevailed following the 2007-2009 global financial crisis over the next year or two.
  • In the U.S., the summer COVID-19 wave did slow the country’s economic momentum during the third quarter. The spread of the virus restrained consumers’ willingness to spend on restaurants, hotels, air travel, entertainment and other services. At the beginning of August, GDP was on track to grow by a 6.1% seasonally-adjusted annual growth rate. It is now signalling an advance of only 3.7%.
  • Yet, we suspect that the gloom related to weakening economic growth in the U.S. may be overdone. Vaccines (including boosters) and improved treatments for severe COVID-19 cases are expected to limit the extent of hospitalisations and deaths, despite the Delta variant’s higher transmission rate than the original virus.
  • Once the latest COVID-19 wave passes, consumers’ spirits will likely revive. For example, households generally remain in good financial shape in the U.S. Household wealth is at an all-time high, owing to booming stock and home prices.
  • While we believe that a rise in U.S. stock-market volatility is likely, we do not anticipate a return to the extraordinary levels of volatility reached at the March 2020 peak. Factors behind a near-term rise in volatility could include further easing of gross domestic product growth amid reduced fiscal spending, the tapering of asset purchases by the U.S. Federal Reserve (Fed), more bad news coming out of China and the seemingly never-ending Congressional battle over the infrastructure bills and the debt ceiling.

Keep reading. Download the full-length economic outlook.

All data as of 9/30/2021 and in U.S. dollar terms unless otherwise noted.

Important Information

SEI Investments Canada Company, a wholly owned subsidiary of SEI Investments Company, is the Manager of the SEI Funds in Canada.

The information contained herein is for general and educational information purposes only and is not intended to constitute legal, tax, accounting, securities, research or investment advice regarding the Funds or any security in particular, nor an opinion regarding the appropriateness of any investment. This commentary has been provided by SEI Investments Management Corporation (“SIMC”), a U.S. affiliate of SEI Investments Canada Company. SIMC is not registered in any capacity with any Canadian regulator, nor is the author, and the information contained herein is for general information purposes only and is not intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment. You should not act or rely on the information contained herein without obtaining specific legal, tax, accounting and investment advice from qualified professionals. This information should not be construed as a recommendation to purchase or sell a security, derivative or futures contract. You should not act or rely on the information contained herein without obtaining specific legal, tax, accounting and investment advice from an investment professional. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. There is no assurance as of the date of this material that the securities mentioned remain in or out of the SEI Funds. 

This material may contain "forward-looking information" ("FLI") as such term is defined under applicable Canadian securities laws. FLI is disclosure regarding possible events, conditions or results of operations that is based on assumptions about future economic conditions and courses of action. FLI is subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from expectations as expressed or implied in this material. FLI reflects current expectations with respect to current events and is not a guarantee of future performance. Any FLI that may be included or incorporated by reference in this material is presented solely for the purpose of conveying current anticipated expectations and may not be appropriate for any other purposes.

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