04/13/2018 11:57 EDT | Updated 04/13/2018 11:57 EDT

Canadian Economic Uncertainty Is At Record Highs, Index Shows

“Will NAFTA end? Is a global trade war brewing? How high will minimum wages go?”

Ben Nelms / Reuters
Demonstrators protest Kinder Morgan's Trans-Mountain pipeline expansion in Vancouver, B.C., Nov. 7, 2016. The suspension of construction on the pipeline is just one element of uncertainty in Canada's economy today.

Canada's economic future is about as murky as it's ever been, at least according to one measure.

And that could mean bad news ahead, because high levels of uncertainty are often followed by an economic slowdown, experts say.

The economic policy uncertainty index — run by a group of prominent economists from Northwestern University, Stanford and the University of Chicago — looks at three elements: Media coverage (in Canada's case, they look at six major newspapers); differences in economists' forecasts; and the number of tax code provisions set to expire in coming years.

For Canada, the index hit a level of 432 in March of this year, its second-highest level ever. The highest was in November 2016, when Donald Trump won the U.S. election.

That means uncertainty today is higher than it was during the tense and gloomy days of the Great Recession a decade ago, noted Bank of Montreal senior economist Sal Guatieri.

"Pipeline construction delays/cancellations are clearly an issue," he told HuffPost Canada in an email.

"Others include rising budget deficits, new mortgage rules and other policies designed to cool the housing market and slow household credit growth, and climate change protection policies."

Put it all together, and it could mean a rough patch for the economy ahead.

"We find that an increase in economic policy uncertainty as measured by our index foreshadows a decline in economic growth and employment in the following months," the economists behind the index say.

So is Canada about to experience a slowdown in investment, leading to a slower economy? That's uncertain.

This week's Bank of Canada business outlook survey found that "business sentiment continues to be positive, supported by healthy sales prospects."

But a similarly timed survey from CPA Canada, which polls professional accountants, found "optimism about the Canadian economy is down significantly amid views the country is becoming less competitive."

Earlier on HuffPost Canada:

"Uncertainty is dominating, especially with growing protectionist trade sentiments and tax changes in the U.S.," said CPA Canada president and CEO Joy Thomas in a statement.

"Canadian business leaders are looking for assurance from the federal government that the situation is being properly monitored to allow a course of action to be developed that will keep Canada competitive."

"If Canadian businesses are shy to invest these days, blame a rocky policy climate," Giuatieri wrote in a client note.

"Will NAFTA end? Is a global trade war brewing? How high will minimum wages go? These are just a few of the issues businesses are wrestling with."

But Guatieri notes that the U.S.'s uncertainty index is only slightly higher than its long-run average, suggesting that "much of the uncertainty is made in Canada rather than in the White House."

Bloomberg via Getty Images
Open house signs displayed on the side of a road in Brampton, Ont., Sat. May 20, 2017. The slowdown in the housing market is one factor creating uncertainty in Canada's economy.

In Canada, that economic uncertainty ramped up this week with Kinder Morgan's announcement that it is suspending work on the expansion of the Trans-Mountain pipeline, throwing the country's oil sector (and relations between Alberta and British Columbia) into an existential crisis.

(The Kinder Morgan news would not have been reflected in the uncertainty index, as the most recent numbers are for March.)

Industry insiders say the lack of clarity on whether Trans-Mountain will be built is already having a "chilling" effect on investment in the country, particularly in the energy sector.

Still, Canada isn't alone in experiencing elevated levels of uncertainty. In fact, the number-crunchers behind the index say it's become a common phenomenon in the years since the Great Recession.

"We find that current levels of economic policy uncertainty are at extremely elevated levels compared to recent history," they wrote. "Since 2008, economic policy uncertainty has averaged about twice the level of the previous 23 years."

Simply put, we live in chaotic times.

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