Canada has voted- What’s the economic impact?

After holding a majority status for the past four years, the Liberal Government under Prime Minister Justin Trudeau fell short of a majority and will need the support of other parties in order to realize his plans. Even though this is not ideal, it is not an uncommon situation for Canada, in which nearly half of the last 20 terms were ruled by minority governments. 

Markets have braced the result with minor movements.

What could be the economic impact? First, overall policy making could become more “deal-oriented” with issues being dealt on a case-to-case basis and changing partners rather than following a consistent path. The New Democratic Party (NDP) would be a good ally because they share the most ideological overlap, when it comes to issues like carbon tax, national health programs or firmer regulations on real estate ownership. More radical views of the NDP on higher taxation for corporations and wealthy individuals and its opposition towards nationwide Energy projects could result in heftier disputes and more cumbersome decision processes with the Liberals though. 

An expected stronger focus on fiscal policy alongside larger deficit spending could have a somewhat positive GDP impact which might be partially offset by increased business caution of Investors and Consumers and a worsening outlook in the Energy sector. The Bank of Canada (BoC) might restrain from further rate hikes, following the path of most major central banks and rather observe the impact of the fiscal policy stimulus first. The Canadian Dollar should keep its relative strength, assuming stable oil prices and a less negative tone in the US-China trade war. Equities must be very carefully selected and monitored, considering the global risks while the elections results did not bring out clear winners unlike the Cannabis stocks in 2015.