Will 2019 put us in the Red or Black?

Once a new year hits and we start to make our way through the cold and snow of January, l start to ponder about things that may happen in the coming year. The one area that is forefront in my thoughts and on my radar is the economy and how it will affect us. Are there any simple rules that l can follow, or should l be speaking to someone? All questions that one asks him or herself about their own finances and can l trust someone that l speak to for advice?

The recent tumble in world stock markets reflects escalating gloom about the global economy, just as record highs for the S&P 500 in mid-September demonstrated boundless enthusiasm about the outlook for the economy. There is a strong possibility that both will turn out to be emotional overreactions. For all the reasons to worry about what lies ahead, there are corresponding arguments for optimism.

The economic expansion seen over the past decade in Canada has been a result of robust consumer spending. Strong job creation, declining unemployment, rising personal income gains, low interest rates, and strong real estate markets have helped to keep consumer spending trending up.

While consumer spending remained positive in 2018, there are headwinds that will likely constrain spending growth. Our good friends with National Bank have told me that consumers are likely to be reluctant to ramp up their debt levels further. Debt as a share of real personal disposable income has climbed to lofty levels, and the share of after-tax income going to service debt is also elevated. Looking forward, households are expected to constrain their debt growth as rising interest rates lift debt-servicing costs. The Federal Reserve will be raising interest rates, lifting US bond yields and, thereby, Canadian bond yields; this is likely to boost fixed mortgage rates in Canada. Meanwhile, we expect the Bank of Canada to raise the rate by 75 basis points this year which will raise variable mortgage rates.

Most people in my circle keep asking: “Is this the end of the cycle,”; “Is there going to be a decline in the market, real estate and tighter consumer spending?”; “Is this latest downward trend in all sectors a prelude to a recession?” All kinds of questions that l ask myself and many folks that l speak to, are asking the same questions. 

Aside from following the economic indicators and trying to stay up to speed with global trends, l personally try to take a positive approach to most of this. When markets tighten up and many people start to sell off, whether in real estate or stocks, there are great opportunities to be had.

If you are sitting on some cash, it may be time to get into the real estate game or jump into the stock market, in my opinion, this is a great time to do so. When stocks are deflated and at a low, some dividend paying stocks are a great long-term hedge. Do some research and take a plunge into the markets, buy only use funds that are not part of your long-term financial position.

Many so-called experts believe that the Canadian economy will likely deliver a solid performance this year, although economic growth will be slower. However, this represents a gearing down to a more sustainable pace of expansion. In 2019, the pace of growth should remain moderate at close to, or slightly below, 2.0 percent. Prospects in 2019 look more challenging. It is likely that the loss of fiscal stimulus and higher US interest rates will lead to significantly slower US growth. Canada is well integrated into North American supply chains and economy. Together, these factors may put the country at risk of much slower growth in 2019.

For the average person like myself, when it comes to the economy and how it affects our pocket book, it can be intimidating, especially when the forecast for the future is doom and gloom.

National Bank financial advisors recommend that picking an advisor should be: “no friends, no family members, no nieces or nephews who are trying to launch their careers, this is a business relationship. So, it’s so important to have the right advisor and quality advice.” Another very important point that National Bank recommends is: “do your homework properly, you really have to have a process you follow. Each advisor should articulate their value proposition very carefully. You can ask your accountant or lawyer, someone who knows you from a financial perspective.”

Be safe and conservative with your hard-earned cash, especially in 2019.

Vincent Black