Carney’s Canada

CIBC PERSPECTIVES

Carney’s Canada

Monday, May 5, 2025

Roman Dubczak,Deputy Chair, CIBC Capital Markets

Hello, everyone. I’m Roman Dubczak, Deputy Chair of CIBC Capital Markets. As the saying goes, “A week is a long time in politics.” And that’s the feature of today’s webcast. We’ll be analyzing the results of last week’s federal election. The Right Honourable Mark Carney was elected as Canada’s 24th Prime Minister, as he led the Liberal Party of Canada to a historic fourth consecutive election victory. The Prime Minister will lead a minority government at an unusually volatile time at home and abroad. And the lack of an outright victory means Mr. Carney will likely need to rely on other parties to pass legislation and remain in power.

The election also saw the Conservative and New Democratic Party leaders lose their seats. To help us forge a path of what lies ahead, with me here today are the Honourable Lisa Raitt, Vice-Chair of Global Investment Banking at CIBC, and Avery Shenfeld, our Chief Economist. Lisa, Avery, thank you for joining today and the very interesting times we live in. Lots to cover, but why don’t we just start with some of the highlight items in the last week or so?

Lisa, why don’t we start with you? Maybe walk us through what we should expect to unfold in the coming week or so with the new government? You know, parliament starting, cabinet starting. Walk us through all that.

The Hon. Lisa Raitt, Vice-Chair, Global Investment Banking, CIBC Capital Markets

You know, there’s rollercoasters where you not climb up the hill, but they actually retract you and then pull you up and then shoot you off? That’s exactly what the Prime Minister is undergoing right now. And first of all, we should say congratulations to the Liberal Party of Canada and to the Prime Minister. Even though I wear blue, it was an impressive campaign.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

– It’s a really light blue. It’s a very…

The Hon. Lisa Raitt, Vice-Chair, Global Investment Banking, CIBC Capital Markets

Yeah, it’s ‘Toronto Maple Leafs blue’ today. The reality is, is that they ran a hell of a campaign, and they won. And everybody agrees that they won, which is something we look at in Canada as being a sure sign of a strong democracy.

So, I’m really happy about that. Now, what does he have to do? He’s got a lot going on. He has to pick a cabinet. He’s already laid out the dates and I want to thank him for that personally as well, because he has decided to approach this in a very workmanlike manner. “Here’s what I plan on doing. Here are the dates that I’m going to stick to.” He’s not afraid, as a politician, to give a date that he will be held accountable to, which is not a normal kind of trend for politicians. So, what we will see is a new cabinet coming in next week. It’ll be analyzed over and over again.

My understanding is that he wants a smaller cabinet. It will be gender parity. To do that, though, it means he’s going to have to double up on some ministries, quite frankly, and we’ll see what ends up fitting together. Heavy load for the incoming cabinet ministers with also, I would say the caveat it can’t look a lot like the Trudeau cabinet because people bought change and he has to bring change to the table. After that, he has a speech from the throne, which I anticipate no problem passing because the Bloc have said, they’re going to give him a year, and then he has to do something on the economic side. Is it an economic update?

Is it going to be a budget? Is it going to be a mini budget? All will be unfolded as time goes by. And in amongst that, King Charles is coming to town, which is a big deal. And it’s important. And the reason why it’s important is you can’t have King Charles going to the States, and you can’t have Donald Trump going to the UK, before they come to Canada. And that was an important, I think, step in making sure that we’re all very clear. We’re part of the Commonwealth and Canada as a sovereign nation, and here’s our king to prove it. Although that doesn’t sound right, does it, when I say it that way?

Roman Dubczak, Deputy Chair, CIBC Capital Markets

– It’s okay.

The Hon. Lisa Raitt, Vice-Chair, Global Investment Banking, CIBC Capital Markets

… we are sovereign. And then after that he has the G7, which is going to be Kananaskis in Alberta.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Yeah, super, super busy period of time. Just a fine point on this three seats shy of a majority. So, how is this going to work?

The Hon. Lisa Raitt, Vice-Chair, Global Investment Banking, CIBC Capital Markets

The Prime Minister said on Friday he feels like he’s got a strong minority. It’s true he can operate as a majority. Far as I’m concerned, he’ll always find somebody or a couple of people.

First of all, Elizabeth May, obviously will be one that he can count on every single time. And you may get one of the NDP and some of the Bloc. So, I don’t anticipate any problems in the short term. I feel that Prime Minister Carney can take this government as far as he’d like to.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Yeah, no. Makes sense. Avery, obviously, first order of business here is matters economic, obviously, and very likely, as Lisa alluded to, either a statement or a full blown budget. What would you anticipate we see in that process? Like, the statement or the budget?

Avery Shenfeld, Managing Director and Chief Economist, CIBC Capital Markets

Well, I think, again, on the lines of having a business plan, the Prime Minister has laid out some of the initiatives he wants to pass. Some of these are going to have to be in some sort of budget-like statement, you know, a tax cut that they want to have kick in in the second half of the year. So, they’ve got to pass the budget so that the withholding rates get adjusted for, July 1st. That’s one of the priorities. He did lay out, of course, a costing plan. I would read that with, a big grain of salt, for a couple of reasons. One is that, like the conservatives, they both based that projection on the parliamentary budget officer’s economic forecast as of March.

That called for 1.7% real GDP growth. That looks high. It caused for a falling unemployment rate that looks very optimistic. So, revenues are not going to be as good as they promised. And expenditures on things like unemployment benefits are going to be higher than they allowed for. But then there’s the other factor that if they don’t get the ‘white smoke’ coming out of the meeting with the White House. So, it’s not all clear, then I think that the priorities have to change a little bit. That budget, the first budget… or the first year of that plan, really had virtually no fiscal stimulus in it. It was loaded up with infrastructure money. And that’s like allocating it to a fund that will spend money over time. We’re not going to build a high speed rail line this year. I don’t know if we’ll build it ever, but we’re not going to build it this year. And so, there isn’t a lot of fiscal stimulus, which might actually be something they have to at least add in order to offset the drag that we’re going to feel in the economy.

So, I think that his projection was a deficit of 2% of GDP. I think it’d be reasonable to think of something closer to 3% of GDP, and hope that they can bring it down back to 2% over the next four years, but it’s going to be higher, and it likely will have to substitute a little bit of more immediate stimulus for, you know, these longer term infrastructure objectives.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Given all that, do you foresee any change in the trajectory of interest rates? You know, where we were earlier this year versus, you know, where we are now versus where we may be going?

Avery Shenfeld, Managing Director and Chief Economist, CIBC Capital Markets

If you listen to the Governor of the Bank of Canada, after their decision to pause in April, in both the press conference and the statement of deliberations that they released afterwards, it was clear they were pretty close to cutting in April. They just wanted to see, maybe fingers crossed we can have a meeting with the president and everything goes away, we don’t need to cut again. But I think the reality is they probably are still on tap for a cut in June. And unless there’s a real lot of fiscal stimulus in this first budget, which I’m not really expecting, they probably go ahead with that cut and perhaps one more.

So, we expect another 50-basis points over the course of the next couple of meetings. And after that, it is going to depend on Trump backing away from what could be the kind of tariff levels that would cause a global recession and Canada would be swept up in that, or something which is what we’re hoping for, something more reasonable that the world can sort of live with. And the Bank of Canada might be done with those two additional cuts.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Yeah. Okay. Thanks. Very, Lisa, you touched on Canada’s leadership of the G7 this year. Big thing, meeting in Kananaskis in June. What do you anticipate happens there?

The Hon. Lisa Raitt, Vice-Chair, Global Investment Banking, CIBC Capital Markets

So, as you know, but maybe some of the folks don’t know, who are watching today. A lot of the work with respect to what happens at the G7 actually gets done beforehand. They have what are called Sherpas, and Sherpas are sent to meet with one another to negotiate. I don’t know how much time they’ve had to do that. And I don’t know whether or not the United States actually has a Sherpa that’s coordinating with everybody. So could be a little bit of a mish mash, to be honest, as to what happens at the G7. But what will happen and is already happening is that the business groups from all the G7 countries are going to be coming together. They’ll have some kind of a dinner, they’ll have some kind of working meetings. The Prime Minister will go to that working meeting, and that will be an important place for the Prime Minister to get feedback from the business community, both in Canada, but as well from around the world. And then secondly, the labour side will also have the same way. So, there’s a lot of meetings and a lot of briefings that have to happen.

The Prime Minister has said that he wants to look at democracy. He wants to talk about institutions in Canada leading in the next world. I think that this whole G7 meeting has a risk of just being about this is the first time Donald Trump is in a room with all these folks, other than the Vatican, when he went to Pope Francis’s funeral, and you saw the coverage that came from that. So, I would say I can’t predict what the outcome is going to be. It could be spectacularly positive or it’s going to be fantastic viewing on television. You know, the other. I’m betting the TV part will be good, but… Like, as for a business person, you know, what would be like best case scenario to come out of the G7?

I would say that it’s going to be a statement around trade and tariffs that the countries agree that the best thing that we can do in our world is to have unencumbered trade and to have, global kind of, working together in order to encourage and enhance our economies and not to do anything that is going to harm that. I think that would be the best case scenario, a kind of certainty that everybody’s on the same page. But this could really be about the United States against the other G6.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

So, both sides. Avery, I’m going to go back to you on that because that those are bookends. What did you think the bookends would be? Vis-a-vis the tariffs? And the impact on.

Avery Shenfeld, Managing Director and Chief Economist, CIBC Capital Markets

So, I can’t imagine Donald Trump signing on to what you just said, which is that, the comfort trade and so on. I still remember him at a previous meeting. I don’t know, it was G7, G10 going to the front of the pack to make sure he was standing in front of all the other…

The Hon. Lisa Raitt, Vice-Chair, Global Investment Banking, CIBC Capital Markets

– It’s good TV viewing.

Avery Shenfeld, Managing Director and Chief Economist, CIBC Capital Markets

… shoving them aside. I think that’s what he’s going to do at this meeting to is somewhat try to dominate it. I think I’m more nuanced statement might still be, welcome though, which is that Trump has now boxed himself into a corner where he wants actually some deals with these other countries. So, maybe it’s not unfettered free trade, but at least an agreement to say we want to lower barriers, working cooperatively, not necessarily back to free trade. I think that’s a no-no for Donald Trump, but something ‘freer’ than where we’re headed now.

And I think Trump would actually want that to come out, because he’s making the claim that he’s making great progress and signing, you know, ‘90 trade deals in 90 days’, or whatever it is. This is a chance for him to have some little meetings on the side with different world leaders and come out and say, “I’m making great progress in getting a big win for the US.” And if it sounds like, you know, basically the parties are all on board together. The country’s all on board together towards at least bringing the temperature down. That’s probably the best we can hope for.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

– Okay. Thanks. And so, yeah, Lisa, last, comment you about in the context of the G7 just in general for Prime Minister Carney going for the unknown unknowns, like there’s always something that comes out of the blue. What are some of those potential out of the blue things that might happen.

The Hon. Lisa Raitt, Vice-Chair, Global Investment Banking, CIBC Capital Markets

War is always a problem and you don’t quite know what’s going on in other parts of the world right now. And the Mideast is particularly volatile at the moment. So, that could always be something that causes a problem. The biggest unknown is which Donald Trump are you getting today? And quite frankly, you know, Prime Minister Carney is going to have an opportunity to be face to face. I have great faith in his ability to be diplomatic and get through the interview. I don’t know what the president’s view is going to be on it.

I’m certain that Mr. Carney won’t make any mistakes that Mr. Trudeau has made in the past about saying things about Mr. Trump getting caught on a hot mic, that kind of thing. So, we’re in the clear on that. But at the G7, if there’s any sense by the Americans that they’re being ganged up on by the other countries there, I think that’s a bad sign. So, it’s going to be up to the president of the G7, who is Mark Carney, to be as diplomatic and as calm as possible as he tries to manage all of these great personalities and different kind of interactions?

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Yeah. Well, it’ll be a, as you said, a great TV.

The Hon. Lisa Raitt, Vice-Chair, Global Investment Banking, CIBC Capital Markets

Yeah. Wishing, wishing him well.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Yeah. Thanks, Lisa Avery, thanks very much for those comments. And, look clearly exciting times. And thank you all for joining us here today. We really appreciate you spending the time with us. And if there’s anything you would ever need in terms of further insights from the CIBC team, please feel free to reach out. We’re here to help and look forward to seeing you again soon. Thanks.