(Bloomberg) -- Escalating trade friction with the U.S. is spooking Canadian households and sending consumer confidence into a slide.
Polling by Nanos Research for Bloomberg News shows a sharp deterioration in household sentiment gauges since Donald Trump and Prime Minister Justin Trudeau squared off over trade issues after a Group of Seven summit two weeks ago, which included a threat by Trump that the dispute is “going to cost a lot of money for the people of Canada.” The decline has been most acute in Canadians’ expectations for growth, which have fallen to the weakest levels in more than two years.
“We rarely see an all out economic threat issued by anyone to Canada,” said Nik Nanos, chairman of Nanos Research. “It’s probably fair to say a certain proportion of Canadians think that Canada will pay and it won’t be a pleasant experience.”
The survey data highlight the extent to which the trade rift is fueling anxiety in a Canadian economy that remains highly dependent on the U.S. for exports. And many economists believe heightened uncertainty -- if it prompts consumers and businesses to scale back spending -- may pose an even greater threat than the direct impact of any tariffs.
The first surveys of business sentiment since the G-7 summit are also expected this week, and should provide insight into how the trade dispute is affecting investment intentions. The Canadian Federation of Independent Business releases its monthly small business barometer on Thursday, while the Bank of Canada publishes its quarterly survey of executives on Friday.
Every week, Nanos Research asks 250 Canadians for their views on personal finances, job security, the outlook for the economy and where real estate prices are headed. Bloomberg publishes four-week rolling averages of the 1,000 telephone responses. A composite indicator -- the Bloomberg Nanos Canadian Confidence Index -- is also calculated from the rolling averages of the four questions.
The overall index plunged to 55.3 in the week ended ended June 22, which is the lowest weekly level since 2016, down from 57.1 a week earlier. The 1.8 point drop is the largest since Nanos began weekly polling in 2013.
While all four questions have recorded a deterioration in sentiment over the past two weeks, the biggest drop has been in the outlook for the economy. The share of Canadians who say they expect the economy to get stronger over the next six months dropped to 14.7 percent last week, the lowest since 2015 when Canada suffered a technical recession. The share of Canadians who see the economy weakening jumped to 38.2 percent, the highest since 2016.
The drop reflects the deterioration in U.S.-Canada relations, which have rarely been more strained. Trudeau’s closing press conference at the G-7 summit June 9 sparked outrage within the Trump administration after the prime minister said the U.S. decision to impose tariffs on Canadian steel and aluminum on national security grounds was “insulting.”
Though Trudeau had made such comments many times before, Trump and his advisers quickly responded. The president tweeted from Air Force One that Trudeau was “dishonest,” and weak. His aides went further, with White House trade adviser Peter Navarro saying there was a “special place in hell” for leaders like Trudeau who negotiate with Trump in bad faith. Navarro later apologized for the comments.
Consumer confidence can be a good barometer of an economy’s overall health and the spat with Trump is fueling concern when households are already uneasy about their prospects. Consumer sentiment has been depressed for much of 2018, reflecting a series of headwinds that includes higher interest rates and slowing housing markets. Canada’s economy hasn’t been able to grow by more than an annualized 2 percent in three straight quarters, something that hasn’t happened since 2015.
Most economists expect the economy to return to above-2 percent growth for the rest of the year, but if sustained, the current slide in sentiment is consistent with growth persisting below 2 percent on an annualized basis.
“We have to see whether things settle in terms of people thinking this is maybe a one-off or a significant decline is on the way,” Nanos said.
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The Nanos survey has a margin of error of 3.1 percentage points.
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