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This page has been updated with additional analysis since first publication. Upside risks to the Bank’s consumption forecasts growing The increase in retail sales in August and flash estimate for another rise in September poses an upside risk to the Bank …
25th October 2024
The government’s new immigration plan implies that the population will decline by 0.2% in both 2025 and 2026, a huge shift from population growth of almost 3% over the past two years. That means GDP growth is likely to remain subdued in the next couple of …
24th October 2024
We discussed the Bank’s policy decision in a Drop-In. You can view the recording here . The weak economic backdrop means we still see a strong case for the Bank of Canada to follow its larger 50bp cut today, which took the policy rate to 3.75%, with …
23rd October 2024
50bp cut likely to be followed by another The weak economic backdrop means there is a strong case for the Bank of Canada to follow its larger 50bp cut today, which took the policy rate to 3.75%, with another 50bp move at the next meeting in December. Our …
All systems go on 50bp A string of soft data releases this week should give the Bank of Canada the necessary confidence to step up the pace of monetary easing at its meeting next week. September’s CPI report , on Tuesday, showed headline inflation at 1.6% …
18th October 2024
GDP growth and inflation have surprised to the downside of Bank’s forecasts That should persuade the Bank to enact a larger 50bp cut next week We expect another 50bp cut in December to take the policy rate to 3.25% by year-end The Bank of Canada has said …
16th October 2024
Supply continues to outpace demand Lower mortgage rates have provided a small boost to demand but, with new listings outpacing sales again in September, the sales-to-new listing ratio suggests that house prices will soon fall. Meanwhile, developers seem …
Manufacturers still struggling The 0.8% m/m decline in manufacturing sales volumes in August looks consistent with the flash estimate that GDP was unchanged that month, leaving the economy on track for a weaker third quarter. Although the S&P Global …
Downside surprise makes a 50bp cut next week look likely The downside surprise to headline inflation in September and muted monthly gains in the CPI-trim and CPI-median core measures support our view that the Bank of Canada will choose a more aggressive …
15th October 2024
The stronger labour market data makes the Bank of Canada’s decision in October a close call but, with upside inflation risks fading, and demand still very weak, we think the Bank will want to bring interest rates to a more neutral stance relatively …
11th October 2024
The key activity and labour market indicators in the Bank of Canada’s surveys did not deteriorate last quarter, but they remain consistent with weak GDP growth, rather than the pick-up the Bank is looking for. The weak results mean that, despite the …
Stronger employment gain unlikely to be repeated The stronger rise in employment and fall in the unemployment rate in September were largely due to a seasonal quirk, as the weak summer jobs market meant that fewer young workers left positions than usual …
With the inflation battle seemingly won, the Bank of Canada has indicated that it is prepared to cut interest rates more quickly if warranted, with that decision hinging on developments in business hiring, investment and consumption. While the focus on …
8th October 2024
Boost from net trade to be offset by weaker domestic demand Despite the trade deficit widening in August, developments earlier in the quarter means that net trade looks set to support GDP growth in the third quarter. With most of that positive …
Home sales struggling to keep up with listings The local real estate board data released this week showed that the housing market is still struggling despite the recent fall in mortgage rates. It was positive to see sales in Toronto grow by a stronger …
4th October 2024
The economy is stuck in a period of below-potential GDP growth, with previous interest rate hikes weighing on consumer spending and investment. This will keep downward pressure on core inflation, which we expect will reach the Bank of Canada’s 2% target …
30th September 2024
Worrying signs in the CFIB Business Barometer Although the CFIB Business Barometer covers only small firms, in recent years the survey indicators have provided a fairly accurate steer to economic conditions. The headline index fell to 55.0 in September …
27th September 2024
Stronger monthly GDP growth will be short lived Although the rise in GDP in July was stronger than expected, the preliminary estimate of unchanged GDP in August suggests that the momentum was short lived and puts third-quarter growth on track to surprise …
Overview – With the inflation battle all but won, weak GDP growth will force the Bank of Canada into more aggressive action, with a couple of 50bp interest rate cuts to end this year. We expect the Bank to adopt a more measured pace of loosening in 2025, …
25th September 2024
Bank to step up the pace of easing The Summary of Deliberations from September’s policy meeting, published on Wednesday, revealed that the Bank of Canada is placing increasing emphasis on the downside risks to inflation and activity. Some on the Governing …
20th September 2024
Stronger third quarter consumption The rebound in retail sales volumes in July will be welcome news to the Bank of Canada, which has been concerned about the downside risks to the economy. With the outlook for sales positive, there is a better chance …
Rent growth slowing rapidly Increased supply and weaker demand are pushing down rents in several cities. That raises the risk of another leg down for apartment prices, despite the recent drop in mortgage rates. The housing market is struggling for …
17th September 2024
Mission almost accomplished The return of headline inflation to the 2.0% target in August was mainly due to favourable base effects and is likely to be short-lived, with inflation rebounding to as high as 2.5% by the turn of the year. Nonetheless, the …
A brief respite for the manufacturing sector The 0.9% m/m rise in manufacturing sales volumes in July implies there are upside risks to the flash estimate that total GDP was unchanged at the start of the third quarter, although the negative tone of the …
16th September 2024
The sharp rebounds in both residential and non-residential building permit issuance in July eased concerns that the construction sector is about to take a turn for the worse. Risks remain, however, particularly for residential construction in Toronto. …
13th September 2024
There was little impact on GDP from the completion of the Trans Mountain pipeline expansion because the jump in exports was supported by a drawdown of inventories from elevated levels, rather than higher production. There is scope for production to rise …
11th September 2024
Getting an early steer on whether an economy has entered recession requires a holistic assessment of a variety of indicators to see if multiple variables are flagging recession at the same time. In this vein, we have created Economic Momentum Indicators …
9th September 2024
The communications from the Bank of Canada this week suggest that the rise in the unemployment rate in August is unlikely to be enough to trigger larger interest rate cuts, which is probably a sign that the Bank is comfortable with the extent of loosening …
6th September 2024
Unemployment rate heading toward 7% The rebound in employment in August should soothe fears that the economy is taking a turn for the worse, although the 0.2%-point jump in the unemployment rate to 6.6% presents clear upside risks to our forecast that it …
The economy looks to be entering a period of below-potential growth, characterised by excess supply in the goods and labour markets. This will keep downward pressure on core inflation, which we think will reach the Bank of Canada’s 2% target by the middle …
5th September 2024
Following its third consecutive 25bp interest rate cut today, the communications from the Bank of Canada reiterated that further cuts are likely. We expect 25 bp cuts at the final two meetings this year. While Governor Tiff Macklem left the door open to a …
4th September 2024
Another 25bp cut, but little sign the Bank considered a larger move Following its third consecutive 25bp interest rate cut today, the communications from the Bank of Canada reiterated that further interest rate cuts are likely. The tone of the …
Trade balance improves, but for the wrong reasons The improvement in the goods trade balance in July was for the wrong reasons, with a fall in imports outpacing a decline in exports. The weakness was due to sharp declines in motor vehicle trade, which …
Second-quarter GDP growth surprised to the upside of the Bank of Canada’s forecast, but the evidence that growth slowed sharply over the quarter suggests that third-quarter growth will be much weaker than the Bank is anticipating. That raises the chance …
30th August 2024
Despite Q2 upside surprise, data raise chance of a 50bp cut next week Although second-quarter GDP growth surprised to the upside, the downgrade to GDP in June and preliminary estimate that GDP was unchanged again in July imply that third-quarter growth …
Core inflation to come in lower than Bank’s forecast Economic growth remains below potential Bank to cut interest rates by 25bp at each meeting until 2.50% The dovish communication following the last meeting and the encouraging July CPI report leave …
28th August 2024
The muted gains in the Bank of Canada’s preferred core price measures in July make another interest rate cut at the September meeting seem inevitable. The Bank will be encouraged by the second soft monthly gain in rents, which may be a sign that we have …
23rd August 2024
Heading for a better third quarter Despite the 0.1% m/m gain in June, retail sales volumes contracted last quarter, suggesting that household consumption growth also slowed. Prospects for the third quarter look better, with the preliminary estimate …
Renewed downward momentum in core prices The softer monthly gains in the Bank of Canada’s preferred core price measures in July suggest that the previous two months reflected normal volatility rather than a stalling of the downward trend in core …
20th August 2024
The data this week cast doubt on the Bank of Canada’s view that the worst is already behind us for the economy, with manufacturing sales slumping to a two-and-a-half year low in June and non-residential building permit volumes plunging to their lowest …
16th August 2024
Housing recovery yet to take off Interest rate cuts have so far failed to stimulate the housing market, although the sharper drop in borrowing costs this month will lend more support. Regional divergences are growing, with Toronto likely to struggle with …
Manufacturing sales weakest since January 2022 It was an extremely poor month for the manufacturing sector in June, with sales falling to a two-and-a-half-year low. As new orders slumped, inventories are elevated and the S&P Global manufacturing PMI for …
With the Summary of Deliberations this week confirming that the Bank of Canada is putting more weight on the downside risks, we feel confident that the Bank will continue to cut interest rates at each remaining meeting this year. Still, with wage growth …
9th August 2024
Not as bad as it looks The second consecutive small fall in employment might seem to suggest that the labour market has taken a further turn for the worse, but it mainly reflected soft part-time employment among younger and older people. The jump in …
With the economy now in a position of excess supply, we expect core inflation to continue to fall back to 2% by the middle of next year. With the Bank of Canada putting more emphasis on the downside risks to the economy, we expect the Bank to cut interest …
7th August 2024
Jump in exports an upside risk to GDP growth The strength of oil exports in June suggests that GDP in the second quarter will come in stronger than the 2.1% annualised gain that the flash estimate implied. Coupled with stronger consumer goods imports, …
6th August 2024
The data this week suggested that second-quarter GDP growth was a touch stronger than expected at 2.1% annualised. We expect higher oil export capacity and strong immigration to prevent a sharp slowdown this year, but with neither tailwind preventing …
2nd August 2024
Second-quarter growth looks a bit better than expected The larger-than-expected rise in GDP in May suggests that the economy performed a little better than we anticipated last quarter, although the preliminary estimate of only a small rise in June is …
31st July 2024
In detailed analysis last year, we concluded that equilibrium nominal interest rates would settle at between 3% and 4% in advanced economies in the next ten years. We maintain that opinion and in fact some of the forces boosting equilibrium rates seem to …
30th July 2024
The Bank of Canada was already first off the mark compared to other G7 central banks and the second 25bp interest rate cut this week, to 4.50%, puts it further ahead in its loosening cycle. Governor Tiff Macklem said in his opening statement that “we are …
26th July 2024
