Expectations for Trudeau’s new government

Expectations for Trudeau’s new government

Experts weigh in on what they expect after a new Justin Trudeau victory.

In the wake of Justin Trudeau’s victory, several Canadian investors and analysts spoke to The Financial Post regarding their predictions for what we can expect from the new government. 

Trudeau’s Liberals were reduced to minority status in parliament following the vote and will need the support of other parties to get important legislation through. This is likely to include the left-leaning New Democratic Party, or even the separatist Bloc Quebecois.

According to the experts consulted by The Financial Post, larger federal deficits, continued uncertainty for the energy sector and a potential push to reduce bills in the telco sector are all high on the agenda for the next few years. Here are the highlights:


Canada’s energy sector could see a backlash in the coming months as a major bone of contention surrounding the injury will be the construction of pipelines to reduce the bottlenecks in Canadian crude markets, said Candice Bangsund, a member of the Fiera Capital Tactical Asset Allocation Committee.

Others are cautiously optimistic, however. “It remains possible that the Trans Mountain expansion will proceed as it has already received Cabinet approval,” said David Doyle, analyst at Macquarie. He added that the same could not be said for new pipelines, which face a more difficult path to approval. 

Nevertheless, opposing voices take a more negative view. “We have a swath of uncertainty around energy yet again, so I expect a sell off on the stock side, starting today and going over the next couple of months until we have a clear picture on where policy may be going,” said Philip Petursson, chief investment strategist at Manulife. 


“In terms of economics, you’re going to see deficits increase,” said Thomas Caldwell, chairman of Caldwell Investment Management. “I think it will be a less popular destination for international funds, for money, for investing. My gut feeling is we will see deficits, we will see less productive spending, less attractive environment to invest funds.”

Liberals have promised to raise the government deficit to CA$27.4 billion (US$21 billion) next year to fund new campaign pledges, bringing it above 1% of GDP for the first time since 2012.

Doug Porter, chief economist at BMO, believes that “significantly larger” budget deficits should be expected given that the Liberals may need to rely on NDP support for some programs. According to Porter, that number could swell to close to $30 billion next year. “I would just expect the net result to be a significantly larger budget deficit—not anything to be overly concerned about,” he said. 

“If a Liberal and NDP coalition holds, spending is likely to increase meaningfully and deficits are likely to get larger in the next two years,” said Mike Archibald, associate portfolio manager at AGF Investments. “This likely means a weaker loonie over the medium term.”

Monetary policy 

According to Bangsund, from a macro perspective, “growth-enhancing fiscal stimulus” backs up the idea that the Bank of Canada will take a “sidelined approach” even as the Fed pursues easier monetary policies south of the border. The narrowing rate differentials between Canada and the US will lend support to the Canadian dollar, she said.

Monetary policy may have been the driver of economic growth in Canada in recent years, but now that rates are much lower they will be a lot less effective going forward, which means having effective fiscal policy is going to be much more critical than it was previously, PIMCO’s Devlin stated.

“The loonie, which is a gauge of what investors think, hasn’t reacted much, which means markets were priced for this,” offered Patrick O’Toole, credit portfolio manager at CIBC Asset Management. “There is still a sense from investors that Canada is still steady as it goes, it’s got a sound government.”


Another sector that could be affected over the next couple of years is telecommunications companies, Macquarie’s Doyle said, given that the Liberal party’s vow to cut cell phone bills by 25% could be supported by the NDP and Bloc Quebecois.

During campaigning, Trudeau’s Liberal party pledged to cut wireless services costs within four years, and the New Democratic Party also indicated that if elected, it would impose price caps on mobile phone and internet services that would save families about $10 (US$7.53) per month. 

The Canadian Wireless Telecommunications Association argues that wireless prices have already fallen by about 30% over the past three years.

“Trudeau’s policy will weigh on telco companies, though I don’t expect a big selloff,” Manulife’s Petursson told The Financial Post.


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