Photo by Owen Wolter
Analysts have claimed that an election campaign won’t be negative for the economy, although the Conservatives are warning that the opposition is putting the economy at risk by rejecting the budget and calling an election.
“The beauty of Canadian elections is that they are over relatively quickly,” Douglas Porter, senior economist at BMO Capital Markets, said. He admits we could get a little bit more short-term volatility in financial markets and that a few businesses might want to take a wait-and-see attitude, but that it wouldn’t have a sizable effect. On the other hand, an election will create a lot of temporary jobs, just as it did in the wake of the October 2008 election. “With the federal election in mid-October, there were large employment gains in public administration, spread across most provinces,” said Statistics Canada.
Rejection of the budget won’t affect the overall economy significantly — only a small increase in volatility is predicted. “There’s nothing outstanding at the moment that’s going to have a huge impact on the economy one way or another,” said Douglas Porter from BMO. There were many measures in the budget supported both by the opposition and conservatives, so they will likely be reintroduced in the next budget. Everything depends on the results of the election called for May 2.
The Bank of Canada is expected not to raise interests rates this spring because, over roughly the past 20 years, it has avoided doing so during election campaigns, stated Scotia Capital economist Derek Holt.
Elections won’t hurt the Canadian dollar, although they do bring a little uncertainty. “Rebounding commodity prices, even with the somewhat dimmed global outlook, will also support the Canadian dollar, likely pushing it towards $1.05 U.S. later this year,” said analysis of BMO.
Most threats to the Canadian economy are external. Porter highlighted the crisis in Japan, the political upheavals in the Mideast, an oil price spike, the sovereign debt crisis in Europe, a hard landing for China’s economy, and the weak U.S. housing market. The high level of household debt is a one of the domestic risks.