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Canada is unlikely to succumb to the same crisis currently afflicting UK markets, but those problems are a reminder that rapidly rising interest rates have a habit of breaking things. In Canada’s case, the biggest vulnerabilities are housing and household …
14th October 2022
Sales slump, leaving more excess inventory The 1.7% m/m decline in real manufacturing sales in August more than reversed the gains over the preceding couple of months, leaving volumes at a seven-month low. Admittedly, sales are being held back by …
Central banks have the tools to deal with liquidity crises arising from rising interest rates and falling asset prices. Instead, the bigger threat is that higher interest rates produce large and simultaneous falls in asset prices that threaten the …
11th October 2022
The hawkish speech from Governor Tiff Macklem this week suggests that the Bank of Canada has no intention of following the Reserve Bank of Australia in dropping down to a 25 bp hike at its next meeting, despite the growing downside risks to the economy, …
7th October 2022
Fall in hours worked another downside risk to Q3 GDP growth The first rise in employment in four months was not as strong as it looked, as it was driven entirely by the public sector, while the fall in hours worked points to downside risks to GDP growth. …
Hours worked fall despite modest rebound in employment The first rise in employment in four months in September is not as strong as it looks as it was driven entirely by public sector employment, while the fall in hours worked points to downside risks to …
Overview – The jump in interest rates and worsening global backdrop leaves the economy facing recession, and elevated debt levels are a downside risk to our forecast for a moderate peak-to-trough fall in GDP of 1.0%. For now, our expectation that …
6th October 2022
Weak export volumes a risk to third-quarter GDP growth The drop in export volumes in August and the large downward revision to the trade surplus in July present downside risks to our already-weak estimate for third-quarter GDP growth of 0.8% annualised. …
5th October 2022
The accepted wisdom is that strong immigration reduces the pressure on the Bank of Canada to raise interest rates, as it will eventually help to ease labour shortages. But the immediate impact has been to boost rental growth at a time when the Bank is …
30th September 2022
Growth slowing but economy doing better than feared Strong gains in the natural resource sector will prevent the economy from contracting this quarter but, with the business surveys deteriorating and the global economy facing recession, it looks …
29th September 2022
The fall in headline inflation to 7.0% in August, from 7.6%, was largely due to energy price effects, but there were also some encouraging signs that underlying inflationary pressures are easing. The number of individual CPI components that rose by more …
28th September 2022
The hawkish message from the Federal Reserve this week has prompted us to revise up our forecast for the peak policy rate in Canada to 4.0%, even as the latest data suggest that inflationary pressures are easing and the economy faces a growing risk of …
23rd September 2022
Retail sales volumes set to fall sharply this quarter The fall in retail sales volumes in July leaves them on track for their weakest quarter since the initial pandemic lockdowns in early 2020. With the Bank of Canada’s policy rate hikes still feeding …
The latest data suggest that the broader housing sector is coping relatively well with higher interest rates. While housing starts and renovations spending are starting to decline from elevated levels, there is little sign of an imminent collapse. The …
21st September 2022
Headline and core inflation moving in right direction The larger-than-expected falls in headline and core inflation in August suggest that the Bank of Canada will enact a smaller interest rate hike in October, particularly with the labour market now …
20th September 2022
Headline and core both moving in right direction The larger-than-expected falls in headline and core inflation in August lend some support to our forecast that the Bank of Canada will drop down to a 25 bp hike in October, particularly with the labour …
Manufacturing outlook remains muted Although manufacturing sales volumes increased by 0.5% m/m in June and 0.6% m/m in July, those gains only partly reversed the 2.1% decline in May. Furthermore, the July gain looks like it was boosted by a …
16th September 2022
Manufacturing activity remains muted Although manufacturing sales fell by 0.9% m/m in July, in line with the preliminary estimate, that was a better outcome than we had expected given the more downbeat export data. Furthermore, the decline was mainly due …
14th September 2022
The public sector has been responsible for almost 90% of the rise in total employment since the pandemic and now accounts for the largest sustained share of employment since the early 1990s. The latest data show signs that this is being reversed, but …
13th September 2022
The Bank of Canada’s hawkish communications this week, alongside its 75bp policy rate hike, suggest that it remains unfazed about the downside risks to activity and that it initially favours a 50bp hike at the next meeting in October. That said, the …
9th September 2022
Fall in public sector labour demand pulling down employment The fall in employment in August was concentrated in the public sector and the jump in unemployment reflected an immigration-fuelled rise in the labour force, so they probably overstate the …
The Bank of Canada remains concerned about the risk of high inflation expectations becoming entrenched but, with the economy now slowing sharply and inflation set to ease by more than the Bank expected, we still see scope for it to follow the 75bp hike …
7th September 2022
Bank gives little away as it hikes by 75 bp The Bank of Canada remains concerned about the risk of high inflation expectations becoming entrenched but, with the economy now slowing sharply and inflation easing by more than the Bank expected, we still …
Stronger export volumes unlikely to prevent Q3 GDP slowdown Export volumes rose by more than we expected in July but, with the fall in import volumes painting a weak picture of domestic demand, it still looks like GDP growth will slow sharply this …
Export volumes rose by more than we expected in July but, with the fall in import volumes painting a weak picture of domestic demand, it still looks likely that GDP growth will slow sharply this quarter. The 2.8% m/m fall in export values in July was the …
Two quarters of strong outperformance have not been enough for the recovery in GDP to catch up with that in the US and, with growth now grinding to a halt, the divergence is set to widen again. GDP still well below pre-pandemic trend The 3.3% annualised …
2nd September 2022
GDP growth and inflation lower than the Bank expected But core inflationary pressures still point to 75 bp hike Bank unlikely to give much away about policy beyond September GDP growth and inflation will be lower than the Bank of Canada …
1st September 2022
Economy slowing faster than expected The weaker-than-expected second-quarter rise in GDP as well as the preliminary estimate of a small fall in output in July confirm the economy is slowing sooner than the Bank of Canada predicted. Nevertheless, given …
31st August 2022
Growth set to slow sharply this quarter The weaker-than-expected second-quarter rise in GDP as well as the preliminary estimate of a small fall in output in July confirm that the economy is slowing sooner than the Bank of Canada predicted. Nevertheless, …
We expect some of the recent surge in travel services prices to be reversed after the summer which, together with signs that global goods shortages are easing, suggests that core inflation is close to a peak. That said, strong wage growth raises the …
30th August 2022
There was some better news from the CFIB Business Barometer and new home sales data this week, although both still point to weak economic growth. Meanwhile, the fall in firms’ selling price expectations to a 10-month low in August suggests that core …
26th August 2022
The surge in interest rates so far this year has contributed to a sharp decline in home sales but, so far at least, that has not weighed on construction activity. Housing starts averaged 279,000 annualised between May and July, 10% higher than the prior …
24th August 2022
The further rise in core inflation in July was largely due to a surge in travel services prices, much of which should be reversed after the summer. Nevertheless, that rise in core inflation, the continued strength of broader housing-related activity, …
19th August 2022
Retail sales volumes will struggle over the rest of 2022 The small gain in retail sales volumes in June appears to have been more than reversed in July. As the Bank of Canada is set to raise interest rates further and there is little reason to expect an …
Construction activity strong despite weak home sales Home sales fell further below the pre-pandemic norm in July and pre-construction sales seem to have fallen through the floor, but there is no evidence yet that this is weighing on construction. It was …
17th August 2022
Underlying inflationary pressures still very strong The fall in headline inflation to 7.6% in July left it lower than the Bank of Canada’s recent forecast but, amid continued broad upward pressure on core prices, we still judge that the Bank is more …
16th August 2022
Little relief in sight for manufacturers Manufacturing sales volumes only inched up in June and, with the manufacturing surveys on both sides of the border weakening in recent months, the outlook is growing even more challenging. The 0.8% m/m fall in …
15th August 2022
Yield curve inversions have a patchy record of predicting recessions in Canada, but they almost always precede a sharp economic slowdown and the unusually deep nature of the current inversion makes it especially hard to be optimistic this time. Yield …
12th August 2022
The Canadian dollar has held up relatively well against the US dollar so far in 2022, but we think the factors underpinning the loonie’s resilience will fade and push it lower against the greenback over the next couple of years. The loonie has been the …
11th August 2022
The sharp increase in retirements this year presents downside risks to our forecasts for employment and, with GDP growth already faltering, further raises the probability that economic activity will contract. The fall in employment over June and July is …
9th August 2022
The further falls in home sales and employment in July add to the evidence that the economy is losing momentum. With no sign of a material easing of inflationary pressures, however, it is too soon to expect the Bank of Canada to pivot. Home sales down by …
5th August 2022
The Great Retirement? The second consecutive monthly fall in employment will raise a few eyebrows at the Bank of Canada but, as retirements were partly to blame, the unemployment rate remained at a record low and wage growth is strong, we doubt it will …
There is scope for inventory building to boost GDP growth in the near term but, as the US experience has recently demonstrated, this could raise the risk of GDP falling in the following quarters. Inventories are still unusually lean and would need to rise …
4th August 2022
Trade surplus likely to narrow soon Export volumes outpaced import volumes in June but, with the survey-based export indices falling back, the outlook is growing more challenging. Together with the declines in commodity prices since June, it seems likely …
The slump in the CFIB Business Barometer in July – to a post-pandemic low – shows that the jump in borrowing costs is hitting more than just the housing market. With the survey still pointing to elevated price and wage expectations, however, the mounting …
29th July 2022
Economy losing momentum Although activity was stronger than initially estimated in May, the economy still failed to grow and the preliminary estimate suggests that GDP only crept up in June. Together with the weakening of the consumer and business surveys …
Governor Tiff Macklem has voiced concern about the inflationary impact of the loonie, but we doubt that a modest fall would prevent the Bank of Canada from pausing its tightening before the Federal Reserve. At US$0.78, the loonie is far lower than the …
28th July 2022
The extent of the downturn in the housing market and broader residential investment will determine whether the economy enters a recession in the next 12 months (see our Canada Economics Outlook ), and in that respect there has been some good news in the …
26th July 2022
