Germany, the U.K. and others are flirting with recession. Can Canada dodge the economic bullet?

Click to play video: 'Money 123: Impact of U.S.- China trade tensions on investors'
Money 123: Impact of U.S.- China trade tensions on investors
WATCH: The impact of the U.S.-China trade war on Canadian investors and mortgage holders – Aug 10, 2019

Fears of a global economic downturn rose on Wednesday, as two of the world’s export juggernauts, China and Germany, reported weak economic data. The news fanned worries about the health of the global economy amid escalating trade tensions.

On the Chinese side, new reports revealed the country’s industrial growth in July ground down to its slowest pace since 2002, while the urban jobless rate reached its highest level since consistent record-keeping began. Economists say the figures are a sign the economic blow from the ongoing trade dispute between Washington and Beijing is hitting China harder than the U.S.

Trump has claimed that China will be hurt more by the trade war than the U.S.,” said Avery Shenfeld, chief economist at CIBC Capital Markets.

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“And while it’s a negative for both economies, he’s right.”

WATCH: How trade wars work and their impact for consumers

Meanwhile, Germany revealed its gross domestic product shrank by 0.1 per cent during the three months ending in June, a dip that has been widely linked to China’s own economic cool-down.

China is a major market for the German economy, so the slowing we’re seeing in China and the slowing we’ve seen in Germany are part of the same story,” Shenfeld said.

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The U.K. economy also switched into reverse during the same period, while Italy has been dipping in and out of negative-growth territory, fuelling concerns that Europe is flirting with recession, usually defined as two consecutive three-month periods of contraction.

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But to what extent do the dark clouds gathering overseas dim Canada’s own economic horizon?

So far, the outlook is not as worrying as one might think, according to Shenfeld.

Canada’s fortunes are closely tied to the performance of the U.S. economy, which has help up relatively well so far, he added.

While the trade spat with China is holding back business investment, “U.S. households are spending, the U.S. population isn’t stagnant the way it is for many European countries and the U.S. recently passed a budget bill that will add to government spending in 2020,” Shenfeld said.

The U.S. economy expanded by a solid 2.1 per cent between April and June, and the latest labour market reading showed the addition of a healthy 224,000 jobs in June.

Even with a southern neighbour still chugging along, Canada, with its heavy dependency on commodities exports, is not immune to what happens in the rest of the world.

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The International Monetary Fund last month trimmed its global economic growth forecast to 3.2 per cent this year, the lowest rate in a decade.

“We are an exporting country, and the prices we get for our oil, our copper, our lumber are are very heavily tied to the pace of global growth,” Shenfeld said. But that pace is still positive, he added.

WATCH: (Aug. 6, 2019) Wall Street recovers after tumble but trade war fears continue to simmer

Click to play video: 'Wall Street recovers after tumble but trade war fears continue to simmer'
Wall Street recovers after tumble but trade war fears continue to simmer

The International Monetary Fund expects the global economy to expand by 3.2 per cent this year and 3.5 per cent in 2020.

Still, things could get worse before they get better.

In the U.S., some analysts warn the economy has been benefiting from the effects of the Trump administration’s 2017 tax plan, which are now waning.

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The law, which cut corporate tax rates and temporarily lowered individual rates, “was intended to stimulate the economy and it has,” said Terry Haines, a policy analyst based in Washington, D.C.

“The question comes down to … how much longer the U.S. economy can continue to run hot … given this 2017 tax law effect,” he added.

Another looming worry is the threat of additional U.S. tariffs on Chinese imports. U.S. President Donald Trump on Tuesday partially backed off an initial Sept. 1 deadline for imposing 10 per cent tariffs on billions of dollars of Chinese imports that had so far remained exempt from the taxes.

In the hopes of blunting the impact of new duties on U.S. consumers ahead of the holiday season, the administration excluded cellphones, laptops, footwear and apparel, among other goods, from an initial list of products slated for the tariff.

But the administration simply delayed the implementation of the tariffs on those sensitive consumer goods, setting a new deadline of Dec. 15.

And while an all-out trade war between the world’s two economic superpowers would be bad news for the world economy, the good news is Canada has latitude to use both government spending and interest rate cuts to soften the impact of trouble abroad, Shenfeld said.

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“There are some weapons that we haven’t yet deployed, if this global outlook does indeed get darker,” he said.

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