In Monday’s federal election, the Liberal Party of Canada won a minority government with the Conservative Party of Canada taking official opposition status and both the Bloc Québécois and New Democratic Party collecting enough seats to potentially prop up a Liberal government.
Overall, these political changes will likely have a very modest impact on broad macro-economic aggregates, says Brett House, deputy chief economist at Scotiabank. “Deficits at the federal level aren’t going to significantly exceed one per cent of GDP. The federal Liberals’ platforms did add some spending on, which would take up the deficits a bit, but they continue to point to a situation where debt-to-GDP ratios will continue to decline overtime. And so we think the macro-economic impact is going to be modest beyond a brief near-term boost to consumption.”
As well, he adds, markets will likely shrug off the modest increase in deficits with little impact on debt sustainability.
Anish Chopra, managing director and portfolio manager at Portfolio Management Corp., agrees there won’t be much change. “I think, generally, the policies that we’ve had before under the Liberal majority government will continue.”
However, Thomas Caldwell, chairman and founder of Caldwell Investment Management, worries that continued Liberal rule is bad news for the economy. “I worry about the debt we’re creating for the future generations,” he says.
He also raises concerns about the business environment. “Increasingly, the Canadian equity market is getting hollowed out with less and less companies — no real new entrants coming in the high-tech area. That’s all in private equity now.”
In terms of how the minority government will shape up, a few options exist for how the Liberals can rule. They can either form a formal coalition with another party or work on gaining support one piece of legislation at a time.
A minority government that seeks support as necessary on particular issues is more likely, says House. “Where they are trying to push through measures that are related to the resource and energy sectors, they may look to the Conservatives to support them. And where they’re doing things on social spending, such as pharmacare, they may look to the rest of the opposition benches for support rather than entering into some kind of formal coalition or time-bound agreement.”
In the days following the election, there hasn’t been much of a reaction in markets and the Canadian dollar saw very little movement, adds House. “I think that reflects a broad market assessment that is both tentative — waiting to see what emerges in terms of how a minority parliament will function — but I think also, an expectation that changes are likely to be small from the status quo rather than large.”