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Prolonged NAFTA Talks Could Slow Economy Growth

Image: The Canadian Press/file photo.

WASHINGTON—Extending NAFTA negotiations into 2019 would prolong uncertainty for the Canadian economy and trim anticipated growth over the next year, says a forecast released Friday.

Scotiabank estimates that the lingering doubts would shave 0.2 percentage points off Canada’s potential GDP, while the bank projects the country would still see modest economic growth of 2.3 per cent on the year.

The timing question is increasingly relevant. With serious negotiating on the hardest issues just barely begun, and national elections in Mexico and the U.S. later this year, conversations are turning to what might happen when the current schedule of talks concludes in March.

With serious negotiating on the hardest issues just barely begun and national elections in Mexico and the U.S. later this year, conversations are turning to what might happen when the current schedule of talks concludes in March.

One scenario involves the talks slowing down, then picking up again after the American congressional elections and after a new Mexican president has taken office in December, setting the stage for a final push for a deal in 2019.

“The ongoing efforts to ‘renegotiate and modernize’ NAFTA look set to extend beyond the current end-March 2018 deadline,” said the Scotiabank forecast.

“Difficult issues remain unsettled and the remainder of 2018 features a packed political calendar that could delay further talks.”

The forecast says the U.S. will not experience any significant investment chill. But it says the lack of clarity could be felt more in Canada, and in Mexico.

It echoed roughly identical findings from the Bank of Canada.

In its recent Monetary Policy Report, the central bank detected a slight slowdown in foreign companies building operations in Canada. It projected the slowdown in so-called greenfield investments would wind up being two per cent through next year, amounting to a decline in overall GDP of about 0.2 per cent.

That investment “has declined since mid-2016, especially from Europe but also from the United States,” said the central bank report.

It’s “a possible sign of the effects of the uncertainty around trade policy. Trade-policy uncertainty is expected to reduce the level of investment.”

The Canadian government has also cited concerns about a lingering cloud over investment as one reason to want an agreement soon. The cabinet member leading the negotiations made the point Friday.

“We would like to get this deal done as quickly as possible,” Foreign Affairs Minister Chrystia Freeland said in Mexico during a meeting with her North American counterparts.

“Uncertainty is never good for business confidence.”

That being said, Prime Minister Justin Trudeau added Friday that the country must be prepared to walk away from negotiations if it is offered a bad deal.

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By Alexander Panetta, The Canadian Press