What the election outcome means to the economy, stocks and the loonie

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Polls closed last night and, while the final seat count is still to be determined with mailed ballots yet to be counted, the Liberals seem to have clinched another minority. For continuous updates on the markets’ response, follow along with the Financial Post’s Kelsey Rolfe @kelseyarolfe as she liveblogs here. For business-specific tips, announcements and information that should be added to this liveblog, please email [email protected].

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9:49 a.m. — Oilpatch calls for support: Canada’s oil and gas lobby association has called for the new federal government to support the sector.

The Liberals vowed during the campaign to eliminate fossil fuel subsidies within two years, develop a plan to end public financing of the oil and gas sector, ensure producers reach net zero emissions by 2050, and require them to cut their methane emissions by 75 per cent from 2012 levels by 2030.

The Canadian Association of Petroleum Producers said the election result “reaffirms the uncertainty in Canada as we continue to struggle with public health and economic issues related to the COVID pandemic” and said the industry planned to continue working with the federal government to rebuild the economy “in a way that advances Indigenous reconciliation, achieves environmental goals and creates sustainable jobs and opportunities for all Canadians.”

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It argued Canadian oil and natural gas are better sources of energy than those produced in other countries. “Our ask of the federal government is to support Canadian prosperity by getting behind our own country’s resources and to trust Canadians to protect the environment rather than relying on other nations to supply the world’s need for natural gas and oil.”

9:18 a.m. — Out, and in, with the old: In a note to clients, CIBC chief economist Avery Shenfeld said CIBC Economics has “no immediate need” to alter its economic forecast in the wake of the election result, given the electorate essentially returned the old parliament to the Hill. “It’s out with the old parliament, in with the old parliament,” he wrote.

CIBC also doesn’t expect any “notable reaction” in the bond or foreign exchange markets, Shenfeld added.

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9:04 a.m. — ‘Loose fiscal policy is here to stay’: While the seat count looks nearly unchanged, Capital Economics senior Canadian economist Stephen Brown wrote that the big picture result may be that “loose fiscal policy is here to stay.”

Trudeau’s victory speech calling the results a “clear mandate” for his government indicate the Liberals plan to press on with promised spending of $78 billion over the coming five years on healthcare policies, the government’s subsidized childcare plan and climate commitments, partially offset by an increase in revenues of $25 billion, Brown wrote. However, he said, the party’s need to lean on the NDP to pass policy means the budget deficit will likely remain wider than the Liberal platform implies. The NDP’s costed platform included a spending increase of roughly $200 billion.

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The government has some wiggle room on spending, Brown said, given the Parliamentary Budget Officer upgraded its projections of Canada’s GDP growth since the 2021 budget. “Despite the Liberals’ planned increase in net spending, the PBO projects that the deficit would remain on a similar path to that set out in the budget,” he wrote. “Either way, a modest increase in net spending is unlikely to have much bearing on GDP growth … because the economy will already be approaching full capacity by the time that the increase in spending comes to pass.”

Brown said the most interesting potential development is the Liberals’ pledge to raise $10 billion of its $25-billion revenue increase by imposing a three per cent surtax on the largest banks and insurers, and by forcing them to provide more funds to the government through a “Canada recovery Dividend.” The measures would “naturally be bad news for profits in the financial sector, although history shows that such threats often amount to little in practice.”

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8:45 a.m. — Small biz reacts: Canadian Federation of Independent Business president and chief executive officer Dan Kelly called on Twitter for the federal government to extend the wage and rent subsidy “immediately,” return the maximum supports to 75 per cent, and adopt the NDP and Green Party promise to extend subsidies until all pandemic restrictions are lifted. He also called for businesses that opened after March 2020 to be included in the supports. Prime Minister Justin Trudeau has previously promised the government would “work on potential solutions” to help ineligible business operators, such as new owners.

The government should reopen the Canadian Emergency Business Account program, Kelly said, and move on the Liberal promise to extend the Canada Recovery Hiring program until the end of March.

“Passports and other COVID restrictions are mounting once again, limiting prospects for a small biz recovery,” he wrote. “Many businesses (are) reporting a further drop in sales just as the feds are phasing out the rent and wage subsidy.”

Kelly also called on the government to support small businesses that have to enforce proof of vaccination. Part of the Liberals’ promised $1-billion provincial vaccine passport launch fund should be put toward the staffing and technology small business owners will need, he said.

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8:37 a.m — Market impact minimal: “As you were, Canada,” BMO economists Robert Kavcic and Carl Campus wrote in an early morning note to clients, saying that the results likely means “fiscal policy will largely remain on its current course.” The market impact is “minimal” so far, with only the loonie modestly higher, though they noted the currency is more influenced by broader market forces than the election at this point. Markets steadied this morning after taking a battering due to concerns that major Chinese property developer Evergrande’s insolvency could “ripple through the financial system.” U.S. equity futures “point to a positive open this morning,” and 10-year Treasury yields are up just under three basis points, to 1.34 per cent.

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While the shelf life of minority governments isn’t terribly long, Kavcic and Campus said this election could herald a period of stability given Canadians’ clear lack of enthusiasm for going to the polls.

7:47 a.m. — Loonie’s up: The loonie is strengthening against the U.S. dollar this morning in Asian trading, off the back of rising oil prices and the Liberals’ projected election win, which indicated the status quo of economic supports will continue apace. Foreign investors had worried Ottawa could face a deadlock that would hamper the country’s economic recovery. The Canadian dollar was trading 0.3 per cent higher, at 1.2785, to the U.S. dollar, or 78.22 U.S. cents, after trading in a range of 1.2779 to 1.2830.

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7:45 a.m. — Good morning! It’s the morning after the 44th federal election, which, at first blush, seems to have brought us near to exactly the same Parliament as we had before. The Liberal Party of Canada is projected to have won a minority government according to both the CBC and CTV News, with the Conservative Party of Canada in official opposition territory. Mail ballots still have yet to be counted, so the final seat counts may change. Follow along with the Financial Post today for more on what the market has to say about the results.

With additional reporting by Reuters, Bloomberg and Yahoo Finance