Chairman and Founder of Caldwell Investment Management Ltd., Thomas S. Caldwell, answers what institutional investors should expect from markets with a Liberal minority government in a recent interview.

According to recent reports, the Liberal Party of Canada won a minority government with the Conservative Party of Canada taking official opposition status and both the Bloc Québécois and New Democratic Party collecting enough seats to potentially prop up a Liberal government in the federal election. 

The deputy chief economist at Scotiabank, Brett House, knows that these political changes will likely have a very modest impact on broad macroeconomic aggregates. Additionally, the deficits at the federal level aren’t going to significantly exceed one percent of GDP. The federal Liberals’ platforms did add some spending on, which would take up the deficits a bit, but they continue to point to a situation where debt-to-GDP ratios will continue to decline overtime.

House believes that the macro-economic impact is going to be modest beyond a brief near-term boost to consumption. According to him, the markets will likely shrug off the modest increase in deficits with little impact on debt sustainability. Check here for more info. 

The managing director and portfolio manager at Portfolio Management Corp., Anish Chopra, agrees that not much change will be seen either. He states that the policies they’ve had before under the Liberal majority government will continue. 

Meanwhile, Caldwell is worried that continued Liberal rule is bad news for the economy. 

“I worry about the debt we’re creating for the future generations,” the founder of Caldwell Investment Management Toronto continued. 

He also raises concerns about the business environment. “Increasingly, the Canadian equity market is getting hollowed out with less and less companies ⁠— no real new entrants coming in the high-tech area. That’s all in private equity now,” Thomas Caldwell continues. 

In terms of how the minority government will shape up, there are a few options that exist for how the Liberals can rule. They have the option to form a formal coalition with another party or work on gaining support one piece of legislation at a time.

A minority government seeking support as necessary on particular issues is more likely. 

 “Where they are trying to push through measures that are related to the resource and energy sectors, they may look to the Conservatives to support them. And where they’re doing things on social spending, such as pharmacare, they may look to the rest of the opposition benches for support rather than entering into some kind of formal coalition or time-bound agreement,” House added. 

House also stated that in the days following the election, there hasn’t been much of a reaction in markets and the Canadian dollar saw very little movement. He thinks that reflects a broad market assessment that is both tentative — waiting to see what emerges in terms of how a minority parliament will function. He also thinks that changes are likely to be small from the status quo rather than large.

(Disclaimer : We are not associated with Caldwell Investment Management)