This week we finish our look at 2016 by focusing north and across the pond – Canada and Europe. For the better part of this year, the economies of both regions have struggled with no particular end in sight.

With regards to Canada, 2015 has been a nightmare for the CAD, which is trading at an 11-year low right now. No one really expected the loonie to be this weak, especially because its sovereign debt is still rated AAA, and Canadian financial institutions have remained financially solid even during the Great Recession. But with almost 20% of its GDP being dependent upon energy and energy-related exports, the continued weakness in commodity prices have caused havoc for the Canadian economy.

Our view for 2016 is that the price of commodities will still be the key for the outlook on the CAD. As long as crude oil holds above $30/bbl next year, the CAD should not fall much further. But if that gives way, we could potentially see the Bank of Canada cut rates further, putting more pressure on its currency, especially in the midst of a U.S. rate-rising environment.

Europe has been languishing with anemic growth ever since the start of the Great Recession. Over the past few months, more problems are adding additional weight to an already substandard recovery where deflationary pressures have to be avoided at all costs. The refugee problem out of the Middle East, the Volkswagen debacle and now the added weight from the terrorist attack in Paris are all combining to hurt sentiment and growth expectations. The European Central Bank continues to respond with more negative interest rates and the euro has weakened, but there is very little economic traction for mainland Europe.

There is one major political event coming in Europe in 2016, with significance that rivals the U.S. Presidential election.  In the latter part of the year, the U.K. will vote on a referendum whether or not to stay in the European Union – that group of common trade and economic relationships that has held Europe together as much as anything over the last few decades.

Overall, Europe seems to be heading for a difficult year ahead, though we would always welcome any good surprises.

Thank you for being a part of Global Perspectives this year. Our Team wishes you a great holiday season and look forward to another exciting year in 2016!

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