3 growth barriers investors can’t ignore

Pressing risks to the economy could force the Bank of Canada to continue its rate-cutting cycle, says Adam Ditkofsky, senior portfolio manager, global fixed income at CIBC Asset Management.

“The bank being on hold has been prudent,” he said in an Aug. 5 interview. “But while inflation remains their primary focus for the bank, we can’t ignore that the bank just recently cut their growth outlook for Canada significantly, from an average growth rate of 1.8% to 1.3% this year, and to 1.1% next year.”

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

Ditkofsky said there are three key risks to growth.

1. The unemployment rate

Currently at 6.9% and expected to rise, the unemployment rate is causing wage growth to drop, he said, adding that there are 3.3 unemployed people for every job available, and fewer than 500,000 jobs available across Canada.

“Without more labour needs, I expect our unemployment rate is going to worsen,” Ditkofsky said.

2. Trade uncertainty

If Canada can’t improve relations with the U.S. or find other trade partners for exports, Ditkofsky said he expects a contracted economy.

“We’ll continue to see merchandise trade deficit north of $5 billion a month, which is roughly 2.5% of our GDP on an annualized basis,” he said. “So that would be a massive drag for GDP as well.”

3. A stagnant real estate market

Residential markets, in particular, have rising inventories and sales that are not improving, he said.

“Also, we still have 60% of mortgages coming up for renewal this year, and while it’s not as painful as last year, given that rates have come down, we are still seeing [refinances] going from close to 2% from where they were five years ago for mortgages, to now closer to 4%.”

While Ditkofsky’s base case doesn’t call for a recession, concerns are valid.

“The risks are still very much there,” he said.

Given the expectation of continued rate-cuts — likely two more through Q2 2026 due to trade uncertainty and the risk of re-accelerating inflation — Ditkofsky is long duration for fixed income.

He continues to favour government bonds over corporate credit, which tend to have more expensive valuations.

“Unlike corporate bonds, they offer far more liquidity and are easily tradable,” he said. “In risk-off periods, government of Canada bonds generate positive returns as yields fall, so they should continue to act as a low-risk source of income, and increase overall portfolio diversification.”

Ditkofsky also likes investment-grade credit over high yield. “That doesn’t mean we aren’t buying any high yield. It just means we’re being more constructive on credit investments.”

One overlooked opportunity in fixed income is hybrid securities, he said, which offer higher yields and spreads compared to the traditional bond market, and are even more attractive than high yield today.

“These are generally deeply subordinated capital instruments from investment-grade corporate bond issuers, that are expected to be called by the issuers at certain dates in the future,” he said.

Enbridge, Bell Canada, Rogers, TC Energy and AltaGas are all examples of hybrid securities currently in Ditkofsky’s portfolio.

He said private debt, data center real estate and collateralized loan obligations are less traditional sectors that could also offer opportunities.

“Key fundamentals, relative valuation and bottom-up analysis are very important to me at this juncture,” he said.

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.