Insights and Market Perspectives

Will Canada be left out of NAFTA?

Author: Portfolio Specialist Group

September 4, 2018

AGF Weekly Perspectives

“A recap of last week’s top economic news and what’s to come”

NAFTA making progress

  • A bilateral trade agreement between the U.S. and Mexico was announced on Monday, putting pressure on Canada to join the preliminary accord.
  • The renegotiated NAFTA terms require that 75% of vehicle production must take place within the countries, up from 62.5%, and a minimum of 40% of the value must be produced by labour earning $16/hour, or else subject to tariffs. The terms also include a 16-year sunset clause, significantly longer than the five years campaigned by President Trump.
  • Talks between Canada and the U.S. continue, with a dispute-resolution mechanism and concessions around Canada’s dairy industry reportedly two major hurdles to overcome.

Canada’s economic growth picks up

  • Canada’s economy grew at a 2.9% annualized pace in the second quarter of 2018, well ahead of the prior quarter’s 1.4% pace, as energy, aircraft and pharmaceutical products surged.
  • Net exports accounted for over half of the gain and grew at the fastest pace in four years. Consumer spending and housing also exceeded consensus expectations, while business investment lagged (though remains the strongest component of GDP over the past year).
  • Barring further NAFTA roadblocks, an October rate hike from the Bank of Canada appears in play given the current pace of economic expansion.

Trans Mountain pipeline approval halted

  • In a surprise outcome, Canada’s Federal Court of Appeal nullified approval of the Trans Mountain pipeline and immediately halted construction on the project.
  • The courts claimed the prior approval was “impermissibly flawed” in failing to account for project-related tanker traffic and not sufficiently consulting Indigenous People.
  • The ruling now forces the National Energy Board to redo its review of the project; a major setback for the Trudeau government, which purchased the $4.5 billion pipeline from Kinder Morgan Inc. earlier this year.

Other economic news

  • U.S. GDP was upwardly revised to 4.2% annualized in the second estimate of Q2 growth. The amendment from the originally estimated 4.1% was helped by corporate profits, as tax remittances fell to three-year lows following cuts introduced earlier in the year.
  • Eurozone inflation slowed to 2.0% in August. While the headline price pressures have held close to the central bank’s target, core inflation also slowed slightly to 1.0%. Also reported, the eurozone’s unemployment rate remained at near-decade lows of 8.2%.

What’s to come

Will manufacturing activity continue to slow?

  • The U.S., eurozone and several others will report manufacturing PMIs for the month of August. The Bank of Canada will also meet during the week, though no policy changes are expected.

Download the Summary

About AGF Management Limited

Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.

For further information, please visit

© 2018 AGF Management Limited. All rights reserved.

Written by

Portfolio Specialist Group

AGF Investments Inc.

More articles like this.

History 101: U.S. mid-term elections and market rallies

Markets are already bracing for a shift in the balance of power in Washington and what it may mean for both domestic and foreign policy.

Read More

Factor investing: Is value ready to make a comeback?

AGFiQ’s Stephen Duench gives his perspective on the value vs. growth underperformance. Can’t view the…

Read More

Welcome to the USMC trade agreement?

A recap of last week’s top economic news and what’s to come Trump continues to…

Read More