Change in Government in Canada to Lead to a Different Policy Mix: BofA

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Change in Government in Canada to Lead to a Different Policy Mix: BofA

Investing.com -- Canadian Liberal Party leader Justin Trudeau announced his decision to step down from office on January 6th. The party is currently in the process of selecting a new leader.

Once a new leader is elected, Trudeau will also step down from the prime ministership. He also announced that Parliament, which is scheduled to reconvene on January 27th, will be suspended until March 24th to accommodate the Liberal leadership race.

Several potential candidates have emerged for the party leadership position, including former Finance Minister Chrystia Freeland and former Governor of the Bank of Canada and Bank of England, Mark Carney.

Canada is expected to hold federal elections no later than October 20, 2025. The election will determine the distribution of 343 seats in the House of Commons, an increase based on the previous electoral map with 338 seats, according to the 2021 census.

As of January 6, 2025, polling data obtained from CBC News' poll tracker indicates that the Conservative Party, led by Pierre Poilievre, has gained a significant 24-point lead over the Liberal Party. If the Conservatives maintain their lead in public opinion polls, this will almost guarantee them a majority in the House of Commons and the future position of Prime Minister.

Bank of America noted that the government's shift from Liberal to Conservative is likely to result in a different policy mix and potentially lead to fiscal consolidation.

The new government will also manage Canada’s relationship with U.S. presidential candidate Donald Trump. In their base scenario, general tariffs imposed by the U.S. on Canada are not anticipated, although the threat of tariffs could be used as leverage.

Bank of America does not expect the Bank of Canada to respond to potential political uncertainties, as they believe the BoC is content to keep interest rates within a neutral range. The Canadian Dollar is expected to continue to serve as a buffer against potential changes in U.S. policies towards Canada.