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  • KPB & Co Research

The Trump administration is feeling the heat, as the risk of a recession rises and the trade war between the U.S. and China escalates. It appears that Trump's aggressive trade policy is a key source of the slowdown in global economic growth. Meanwhile Canada, a country that has a much smaller sway on international affairs, is feeling the negative spill-off effects of the trade conflict. Revenues of the companies in the manufacturing sector declined in June 2019, relative to the prior month, and relative to the same month one year earlier.

According to data from Statistics Canada, Sales of manufactured goods declined by C$4.0Bn in June 2019 relative to May 2019. There were notable declines in both non-durable (C$2.8Bn) and durable (C$1.6Bn) goods industries over the period. The categories with the strongest declines were Chemical manufacturing (C$1.0Bn), Food manufacturing (C$0.6Bn) and Transport and equipment manufacturing (C$0.5Bn). The decline in the manufacturing sector was less acute on a year-over-year basis with the revenues declining by approximately C$1.3Bn, owing to declines mainly in the non-durable goods segment. On a year-over-year basis, the declines in the non-durable good sector was broad based with similar declines of C$0.1Bn seen in food, beverages, textile mills, printing products, chemicals, and plastics. Petroleum and coal product manufacturing stood out as a strong decliner as energy markets remained soft during the period.

Revenues of Canada Manufacturing Companies As At June In C$Bn

There are already big question marks over whether there will be a recession in Canada and globally as we head into Q4 of 2019 and Q1 of 2020. Yield curves in the U.S., U.K. and Canada have inverted several times this year, and central banks across the globe have become more dovish. Some central banks have already slashed rates. If the measures taken to stimulate economic activity runs out of the steam early in the game, the Canadian manufacturing sector will be in for a rough ride. On the other hand, it appears that Central Banks are quite ready to support the growth momentum even if early attempts fail. This time around the policy tools at their disposal is limited given that interest rates are still close to zero. It is therefore interesting to see how monetary and fiscal authorities will react to sure-up the economic system going forward.

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