The Chinese government has been pushing for stimulus measures to stabilize the domestic economy, and hopes were high for an economic recovery as the country's zero-COVID policies were relaxed. Despite the initial boom, Onyette Jefferies says these measures have not been very effective in halting China's economic decline.
“If you look back at 2018 and 2019, the roads of the global supply chain all went through China, and then in 2020 we realized that China, while masquerading as a normal Western economy, is a command economy that can shut things down and keep them shut down if it comes down to it,” he said. “So, to keep their supply chains resilient, all of the companies have been diversifying. … The geopolitical tensions between the U.S. and China haven't necessarily helped that fact either.”
As America's North American neighbour, Onyette Jeffries says Canada has naturally benefited from the US's Friends Shoring efforts. He argues that the resilience of the US economy, and particularly the US consumer, has supported Canada greatly over the past few years. However, with the upcoming federal election in 2024 and growing “Made in America” rhetoric south of the border, that could change, he says.
In Canada, the top domestic risk is fees
Domestically, Onyet Jefferies sees interest rates as the biggest risk to Canadians. The job market rebounded sharply after the COVID-19 shutdown, but the resulting income gains didn't translate into a proportionate increase in spending, creating a savings “glut,” he argues. The fact that savings have remained high helps explain why the Bank of Canada's interest rate hikes have not been as effective at taming inflation as expected, forcing it to take more drastic measures at the expense of Canadian borrowers, he argues.
“Compared to the U.S., where the average mortgage is a 30-year fixed rate, Canadian consumers are very interest-rate sensitive. Typically, the term in Canada is a five-year fixed rate,” he says. “There was a big wave of refinancing activity when interest rates were near zero, a scenario that will leave many consumers stranded going forward.
