The Chinese government has been attempting to stabilize its domestic economy by pumping stimulus into the system, and there were high hopes of a resurgence following the easing of zero-COVID policies in the country. Despite an initial boom, Onyett-Jeffries says those measures to arrest China’s economic slide have not gained much traction.
“If you go back to 2018 and 2019, all roads of the global supply chain went through China. And in 2020, we realized that as much as it styles itself as a normal Western economy, it’s still a command economy that can shut things down and keep them shut down when it wants,” he says. “So to maintain resiliency in their supply chains, we’ve seen all these businesses diversifying away. … The geopolitical tensions between the US and China aren’t necessarily helping that fact either.”
As a North American neighbour to the US, Onyett-Jefferies says Canada has been a natural beneficiary of its efforts at friendshoring. He argues that the resiliency of the US economy, and the US consumer in particular, has significantly supported Canada over the past few years. But with the coming general election in 2024 and a rise in “made in US” rhetoric south of the border, he says that could change.
In Canada, rates top domestic risks
On the domestic front, Onyett-Jefferies sees interest rates as the top risk for Canadians. While the job market snapped back to life after the COVID shutdowns, he argues that the resulting income growth did not translate into proportional growth in spending, generating an “excess” of savings. The fact that savings remain elevated, he contends, could explain why the Bank of Canada’s rate hikes haven’t been as effective in quelling inflation as expected, and why it’s had to take more drastic steps at the expense of Canadian borrowers.
“Canadian consumers are very much exposed to interest rates compared to the US where the average mortgage is at a 30-year fixed rate. Generally, the term in Canada is a five-year fixed rate,” he says. “We had this big wave of refinancing activity when interest rates were close to zero. This is a scenario which isolates a lot of consumers as we move forward.
