Canada Votes: The Promising Promise of Economic Reform
Author: Kevin McCreadie
April 28, 2025
Despite their differences, the country’s two contending political parties seem to agree that making Canada’s economy more productive and less reliant on its biggest trading partner is a critical priority for the next government, says Kevin McCreadie, CEO and Chief Investment Officer at AGF Management Limited.
What are the potential investment implications of Canada’s federal election?
It’s very difficult to predict how the outcome of the election will impact the country’s economy and financial markets over the next few years. There is just too much uncertainty related to the U.S. administration’s chaotic trade policy for anyone to really know for sure. And regardless of who wins, investors may need to be prepared for an extended period of heightened volatility as it relates to their portfolios until there is greater clarity around this matter.
Still, we believe Canada’s election is an essential step towards combating the ongoing threat from its closest neighbour. In fact, given all the turmoil we’ve experienced so far this year, just having Parliament back in session following three months of prorogation is positive progress.
Yet even more than that, it could be the beginning of a significant—and much needed, in our opinion—retooling of Canada’s economy, which has become less competitive in recent years, particularly as it relates to its productivity compared to other G7 nations.
To this end, both the Liberals led by Prime Minister Mark Carney and the Conservatives led by Pierre Poilievre seem committed to tax cuts and various regulatory and budgetary reforms that could help stimulate economic growth and drive more efficient corporate profitability over the long term.
Of course, that’s not to say Liberals and Conservatives are entirely on the same page when it comes to the details of their respective policies and how they plan to prioritize them. For instance, as Mike Archibald, one of our portfolio managers noted in a recent blog, a Liberal government may lead to incrementally more spending and a greater emphasis on support for the auto sector or renewable energy companies, whereas the Conservatives may focus more on tax cuts and support for the natural resource sector.
Nor does it suggest their costed economic projections are entirely feasible, or that either party will be adept stewards of the country’s economy going forward, which, no doubt, will involve difficult trade negotiations with the U.S. administration almost immediately.
But for all the differences that may exist, we are generally encouraged by the acknowledgment of both front-running parties that Canada’s economy is at a crossroads and that making it more productive and less reliant on its biggest trading partner must be a top priority for whoever ends up forming the next government.
Although difficult to predict, where do shared interests lie in terms of economic policies that could catalyze economic growth and/or influence financial markets?
To start, both the Liberals and the Conservatives are promising to increase fiscal stimulus via government spending and tax cuts, while also pledging a large reduction in bureaucratic red tape. These measures would very likely provide ballast to economic growth and corporate profits as the country navigates the ongoing tariff war with the U.S. in the short term, yet we expect they may also act as a long-run earnings catalyst that could eventually result in a net positive impact on equity prices.
Of course, the potential for higher deficits as the result of more fiscal stimulus may also lead to higher bond yields—all else being equal—and an increase in the Canadian dollar. In turn, the Bank of Canada may end up becoming more hawkish than present by leaning towards a less accommodative monetary policy than some may expect currently. This may be especially true in the near term whereby the prospect of an inflation spike due to tariffs offsets concerns about weakening economic growth.
As for exactly how some of the increased spending would be allocated, there seems to be general agreement among the Liberals and Conservatives that Canada’s economy is in desperate need of new and improved infrastructure, which could benefit a host of sectors and industries, including engineering and construction, oil and gas pipelines, renewable power and the banks, which would be needed to help finances these projects. Housing is also a top shared priority, which could be a boon for homebuilders and for commodities such as lumber and steel.
Beyond that, perhaps the most critical economic reform being touted by both parties is the elimination of interprovincial trade barriers, a move that could boost the country’s GDP by 4% or more, according to a 2019 estimate from the International Monetary Fund. Granted, freer trade between provinces has been talked about for years and may be easier said than done. However, the political will to finally make it happen has never been more evident, and Ontario’s new deal to drop trade barriers with New Brunswick and Nova Scotia is a sure step in the right direction.
Given these examples, how important is it for the party who wins the election to garner a majority in the process?
Historically, the perception has been that majority governments are better for financial markets than are minority governments. As the theory goes, the latter is more likely to create policy gridlock, thus thwarting (or watering down) some of the governing party’s campaign promises.
Yet given some of the common ground that exists between parties, this may not be as much of a sticking point with investors as it may have been for some in the past.
Besides, our research* of S&P/TSX Composite Index returns in the context of federal elections since 1968 suggests this perception may not even be the reality. Indeed, while majority governments tend to be less volatile as it relates to the country’s main stock market benchmark, we found that minority governments have netted better average gains 12 months after election days in the past.
Ultimately, what we believe could be most important to investors isn’t whether Canadians vote in a majority or minority government, but instead that both contending parties seem to recognize the existential threat facing the country’s economy and are committed to creating a more robust framework for future economic growth and corporate profitability now and in the future.
*Based on analysis from AGF Investments using Bloomberg data. S&P/TSX Composite Index performance was compiled following each of Canada’s federal elections since 1968. Election outcomes are one of many potential factors that may influence investment returns. This research does not show or suggest a definitive cause and effect between Canada’s past election outcomes and S&P/TSX Composite Index returns. One cannot invest directly in an index. Past performance is not indicative of future results.
The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds, or investment strategies.
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About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. Our companies deliver excellence in investing in the public and private markets through three business lines: AGF Investments, AGF Capital Partners and AGF Private Wealth.
AGF brings a disciplined approach, focused on incorporating sound, responsible and sustainable corporate practices. The firm’s collective investment expertise, driven by its fundamental, quantitative and private investing capabilities, extends globally to a wide range of clients, from financial advisors and their clients to high-net worth and institutional investors including pension plans, corporate plans, sovereign wealth funds, endowments and foundations.
Headquartered in Toronto, Canada, AGF has investment operations and client servicing teams on the ground in North America and Europe. AGF serves more than 800,000 investors. AGF trades on the Toronto Stock Exchange under the symbol AGF.B.
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Written by
Kevin McCreadie, MBA, CFA®
CEO and Chief Investment Officer
AGF Management Ltd.
