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During his appearance before the Standing Committee on Finance this week, Governor Tiff Macklem faced questions about why the Bank of Canada is still adding further stimulus through its QE purchases, even though inflation is set to spike to more than 3% …
30th April 2021
Q1 growth could be stronger than US, but third wave to weigh on Q2 At 0.4% m/m in February, GDP growth was a bit weaker than Stats Can first thought but, with the preliminary estimate pointing to a much larger 0.9% m/m rise in GDP in March, first-quarter …
The ratio of homes under construction to population growth is at a record high, reflecting both the strength of housing starts and the weakness of immigration. (See Chart 1.) While the boom in construction might seem like a much-needed response to the …
29th April 2021
The proposed national preschool system could increase the labour force, and therefore potential GDP, by 1.2%, but the impact will be spread over many years and might be dwarfed by changes to immigration. The headline policy in the 2021 Budget (see here ) …
28th April 2021
Retail sales to drop back again in April The gains in retail sales in February and March are likely to be reversed this month, but the high level of consumer confidence suggests spending will recover quickly once the coronavirus restrictions are lifted. …
Reflecting the additional fiscal support confirmed in the 2021 Budget this week, the Bank of Canada has raised its GDP growth forecasts to be closer to our own. Nevertheless, we do not expect the Bank to raise its policy rate as soon as its new guidance …
23rd April 2021
The Bank of Canada’s decision to trim its asset purchases and pull forward its guidance on interest rates confirms that it has become more upbeat about the economic outlook. We expect it to bring its QE program to a close by the end of 2021 but remain …
21st April 2021
Base effects exaggerate inflationary pressure Despite a muted monthly rise in prices, inflation jumped to 2.2% in March due to base effects. It will surpass 3% in April for the same reason. While inflation should then ease, we expect it to remain above 2% …
Tight supply and buoyant demand to drive acceleration in house price growth House price inflation according to the Teranet index surpassed 10% in March for the first time since 2017, and the high sales-to-new listing ratio implies it will continue to …
20th April 2021
The additional stimulus outlined in today’s Budget was in line with our expectations and, while a few of the proposals will raise eyebrows, the total package should help to support a strong economic recovery. The $101bn of fresh spending measures …
19th April 2021
We expect the government to unveil further stimulus measures worth a little more than 4% of GDP next week, and anticipate a slightly more dovish message from the Bank of Canada than markets are pricing in. Budget 2021 The government told us in its Fall …
16th April 2021
Semiconductor shortage weighs on manufacturing sales The 1.6% m/m fall in manufacturing sales in February was primarily due to the negative effect on the auto sector of the global semiconductor shortage. While that shortage has persisted into March and …
15th April 2021
Economy outperforming the Bank’s January forecasts Bank to slow pace of asset purchases GDP forecasts to be revised higher, but timing of first interest rate hike still in 2023 The Bank of Canada is set to cut the pace of its asset purchases next week. …
14th April 2021
House prices look increasingly vulnerable to future rises in interest rates. While the economy coped well the last time the Bank of Canada’s rate hikes shook the housing market in 2017 and 2018, the risks are greater now because residential investment …
13th April 2021
Several indicators strengthen to record-highs The Bank of Canada’s quarterly surveys suggest that investment and consumption will recover strongly in the coming year, and are another reason to expect the Bank to trim its asset purchases next week. While …
12th April 2021
The proposal by the financial regulator OSFI, to raise the qualifying rate for uninsured mortgages, is unlikely to weigh on house prices. But by reducing the share of highly-leveraged borrowers, it should soothe the Bank of Canada’s growing concerns about …
9th April 2021
Strong gain to be partly reversed this month The 303,000 jump in employment in March was far stronger than expected. While some of the gains will be reversed this month due to the tightening of coronavirus restrictions, that will prove temporary and the …
Overview – The third wave of COVID-19 means that the restrictions on activity will be in place for longer than we assumed, but the economy is poised to recover strongly once vaccinations reach a critical mass, especially with the help of an additional …
8th April 2021
Semiconductor shortage weighs on trade The global semiconductor shortage and severe winter weather in the US contributed to the falls in exports and imports in February, with the auto sector hit especially hard. Those shortages look set to persist for …
7th April 2021
The data this week showed that the economy made a stronger start to the year than we previously thought, but the restrictions now being imposed to fight the third wave of the coronavirus suggest that growth will be slower than we anticipated in the second …
1st April 2021
Stronger performance points to QE reduction in April The economy’s stronger-than-expected performance at the start of 2021 bodes well for the recovery and is likely to further convince the Bank of Canada that it is time to reduce the pace of its asset …
31st March 2021
Recent global developments and the signal this week from the Bank of Canada, that it is likely to cut its asset purchases sooner than we expected, lead us to think that Canadian bond yields will rise further this year. In contrast to our expectations a …
26th March 2021
The housing market has gathered more momentum in the past month and, if this continues, could prompt the Bank to tighten policy sooner than we anticipate. The Teranet measure of house price growth rose to almost 10% y/y in February and the MLS measure …
24th March 2021
The Bank of Canada seems to have signalled that it will reduce the pace of its government bond purchases at its next meeting in April. We now expect it to bring its net purchases to zero by the end of the year. In a speech today, Deputy Governor Toni …
23rd March 2021
While the government hinted this week that the vaccination program could be completed before the target of September, the threat of vaccine nationalism elsewhere means that, with Canada reliant on foreign production, efforts could still be derailed. …
19th March 2021
Preliminary estimate points to strong February The fall in retail sales in January was smaller than first indicated and the preliminary estimate for February suggests that, as lockdowns were lifted, most of the decline over the prior two months was …
We expect inflation to hit 3.5% in April and then to sit at the upper end of the Bank of Canada’s 1% to 3% target range for most of the rest of the year. Given the likelihood that inflation will drop back to less than 2% in 2022, however, we do not expect …
18th March 2021
Inflation to surpass 3% in April The modest rise in inflation to 1.1% in February is set to be followed by much sharper increases to more than 2% this month and to more than 3% in April, as energy inflation surges. The increase to 1.1%, from 1.0% in …
17th March 2021
Manufacturing sales surpass pre-pandemic level The manufacturing sector made a strong start to 2021, despite the major disruption to the auto industry from the global microchip shortage, as sales across the natural resource sectors rose sharply. The 3.1% …
15th March 2021
The Bank of Canada looks set to upgrade its GDP forecasts in April, but we would be surprised if it turned much more hawkish with regards to policy. The Bank delivered a reasonably upbeat statement alongside its decision to keep its policy rate at 0.25% …
12th March 2021
Easing of restrictions boosts employment The strong rebound in employment in February almost fully made up for the losses in December and January. While the pace of gains is now likely to slow, employment should continue to rise as the vaccination program …
The Bank of Canada adopted a more upbeat tone in its latest policy statement but, given the slow vaccination program and the Bank’s concerns about the labour market, we doubt this is a signal that it will be reducing the pace of its asset purchase at the …
10th March 2021
While labour market conditions are probably not quite as strong as the Labour Force Survey (LFS) measure of employment suggests, they do not seem to be as weak as the Survey of Payrolls, Employment and Hours (SEPH) implies either. Ultimately, with the …
9th March 2021
One of the most striking developments since the pandemic has been the surge in residential investment. The fourth-quarter national accounts, which this week showed a stronger-than-expected 9.7% annualised gain in GDP (see here ), also revealed that …
5th March 2021
Temporary factors behind rare trade surplus The 8.1% m/m surge in exports in January was partly due to temporary factors but, amid strong global demand for commodities, exports are doing better than we expected a few months ago. The sharp improvement in …
Economy has outperformed the Bank’s forecasts But output still far from potential and Bank emphasising need for inclusive recovery Bank to push back against expectations it will raise rates in 2022 Although the economy has been stronger than expected, we …
3rd March 2021
Economy continues to outperform expectations The 9.6% annualised gain in fourth-quarter GDP was three times as strong as the consensus forecast from just a couple of months ago. The preliminary estimate that GDP grew by 0.5% m/m in January confirms that …
2nd March 2021
The surge in yields this week occurred despite another signal from the Bank of Canada that it plans to keep interest rates at rock-bottom levels for a long time. This has led to suggestions that the Bank could engage in yield curve control, but we think …
26th February 2021
Given our latest forecast for oil prices, we now expect the Canadian dollar to rise further in 2021 than we previously thought, but to drop back a bit in 2022. Despite already rising more than 15% against the US dollar from the last year’s low, we think …
25th February 2021
We think market participants are getting ahead of themselves by pricing in an interest rate hike from the Bank of Canada in 2022, particularly as Governor Tiff Macklem again signalled yesterday that the Bank will place greater emphasis on employment …
24th February 2021
The pandemic has thrown up many surprises for the Canadian economy, the latest of which is the speed at which oil production has rebounded. Even though global fuel demand remains weak amid ongoing global travel restrictions, the Canada Energy Regulator’s …
23rd February 2021
The government signalled its commitment to its new immigration target this week, but disruption from the pandemic will probably prevent immigration from picking up meaningfully until at least the end of 2021. It is not often that the bi-weekly Express …
19th February 2021
Retail sales should start rising again this month Lower-than-usual holiday spending caused retail sales to fall by more than 3% m/m in December and, amid the latest lockdowns, the preliminary estimate shows sales fell by almost as much again in January. …
Tightness of supply points to further house price gains The further slowdown in the monthly pace of gains in January suggests house price inflation will soon peak at a little more than 10%. The 0.3% m/m rise in the Teranet House Price Index equated to a …
18th February 2021
Record low inventory should continue to drive strong house price gains in the first half of the year, but we expect house price inflation to slow beyond then as bond yields and mortgage rates start to rise. Home sales rose by a further 2% m/m in January, …
17th February 2021
Inflation to rise to 3% by April Inflation rebounded to 1.0% in January and is set to rise to 3% or higher in April. That spike will mainly reflect base effects linked to the sharp falls in energy prices early last year but, as the economy re-opens, we …
The housing market has largely shrugged off the latest phase of the coronavirus restrictions. If anything, the data imply there are upside risks to our already above-consensus forecasts for house prices this year. Admittedly, the 7.5% m/m drop in home …
12th February 2021
The easing of the coronavirus restrictions will support a rebound in employment, but the recovery is likely to be slow going for the next few months due to limited progress with vaccinations. Admittedly, almost all restrictions will remain in place in the …
10th February 2021
The larger-than-expected 213,000 fall in employment in January was disappointing, but we can take some comfort from the details of the Labour Force Survey, which showed that total hours worked continued to recover. The 0.9% m/m rise suggests there are …
5th February 2021
Hours worked rise despite slump in employment While the slump in employment in January suggests GDP growth will slow sharply this quarter, the unexpected rise in hours worked supports our view that GDP will at least continue to increase, and the strength …
