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There was never any doubt that the Bank of Canada would keep policy unchanged when it met earlier this week, although its decision to drop any reference to future interest rate hikes from its policy statement appeared to take investors by surprise. … …
26th April 2019
By dropping any reference to future rate hikes today, the Bank delivered its most dovish policy signal in two years. While the Bank remains optimistic about economic prospects in the second half of the year, we think that its forecasts for growth to …
24th April 2019
The Bank of Canada’s Business Outlook Survey showed that firms’ expectations for future sales improved only slightly at the start of the year. The future sales balance is still consistent with annual GDP growth slowing to less than 1%. At the same time, …
A slew of data releases this week presented mixed signals for the Bank of Canada ahead of next week’s policy meeting. Although core inflation has picked up and the economy probably performed a bit better in the first quarter than the Bank was expecting, …
18th April 2019
February’s 0.8% m/m rise in retail sales was a pleasant surprise given the unusually severe winter weather that month. Although consumer confidence has rebounded a touch so far this year, it is still fairly low and suggests that retail sales growth is …
The weakness of the recent business surveys suggests that the Bank of Canada will strike a dovish tone at its meeting next week. The Bank is unlikely to start talking about interest rate cuts just yet, but we think its next move will be in that direction. …
17th April 2019
Recent declines in capacity constraints and inflation expectations suggest that March’s pick-up in core inflation is likely to be reversed before long. Meanwhile, the slump in export volumes in February suggests that net trade weighed heavily on …
February’s drop in manufacturing sales volumes adds to the signs that the economy had a poor month. While part of the weakness may reflect temporary factors, such as unseasonably severe winter weather, it should help to persuade the Bank of Canada to …
16th April 2019
The latest Business Outlook Survey suggests that GDP growth will remain weak while core inflation could fall sharply. This supports our view that the Bank of Canada’s next move will be to cut interest rates. … Business Outlook Survey …
15th April 2019
The recent rebound in oil prices would normally be great news for the Canadian economy. But with regulatory concerns and capacity constraints likely to hold back investment in the energy sector and households looking vulnerable to higher gasoline prices, …
12th April 2019
The Teranet House Price Index showed a second consecutive monthly fall in house prices in March. The recent weakness of home sales and the increase in new home supply this year suggests that house price inflation will remain low. … Teranet House Prices …
The continued weakness of home sales suggests that March’s rebound in housing starts is unlikely to be sustained, while the subdued pace of house price inflation points to spending growth remaining weak. … Full effects of housing downturn yet to be …
11th April 2019
Despite the strength of the labour market, the precarious condition of households’ finances suggests that consumer spending growth will continue to disappoint. … Households vulnerable despite robust labour …
During a speech this week, Bank of Canada Governor Stephen Poloz refused to commit to the possibility of further rate hikes and suggested that the neutral range was not a good target for investors to have in mind when it comes to the future direction of …
5th April 2019
The Bank of Canada won’t worry too much about March’s small drop in employment following previous strong gains and will be more encouraged by the fact that wage growth rose to seven-month high. Nevertheless, wage growth is still low by recent standards …
The Bank of Canada’s belief that the policy rate is still far below its neutral level looks doubtful. In fact, market pricing implies monetary policy is as restrictive as it was on the eve of the global financial crisis. … Policy not as loose as Poloz …
2nd April 2019
The consensus-beating jump in monthly GDP in January means that first-quarter growth will not be as weak as we previously expected. Growth will still be well below potential, though, and our forecast that the Bank of Canada will cut interest rates in 2019 …
29th March 2019
January’s 0.3% rise in monthly GDP was far better than expected, and its broad-based nature lends support to the view that the economy’s recent soft patch was mainly due to temporary factors. But with forward-looking indicators still consistent with …
We expect GDP growth to slow to only 1.0% this year, as the housing downturn weighs on the domestic economy and exports are held back by the global slowdown. That weakness should prompt the Bank of Canada to cut interest rates in the second half of this …
28th March 2019
The further decline in the international manufacturing surveys in recent months suggests that January’s strong export growth is unlikely to be sustained. With import volumes rising by even more than export volumes at the start of the year, net trade seems …
27th March 2019
While our GDP growth forecasts are far below consensus, the narrowing and even outright inversion of parts of the yield curve in the past month suggests that investors also have little faith in the consensus view that economic growth will accelerate later …
26th March 2019
In his 2019 budget Finance Minister Bill Morneau revealed extra spending amounting to a modest 0.2% of GDP, which will not materially change the outlook. By introducing a policy to help first-time homebuyers that won’t actually come into effect for …
22nd March 2019
The recent decline in unit labour cost growth suggests that February’s drop in one of the Bank’s measures of core inflation is a sign of things to come. Although retail sales volumes performed a touch better than we expected in January, the economy still …
It will be at least 18 months before any meaningful boost to construction from the equity loan scheme is felt. In the meantime, the softness of new home sales means that new construction is set to fall sharply. … Equity loans won’t prevent construction …
20th March 2019
The modest increase in spending detailed in Canada’s 2019 federal budget does little to alter the economic outlook. The onus therefore remains on the Bank of Canada to support the economy. … Budget 2019 won’t drive pick-up in …
Consumers’ housing wealth declined last year for the first time in over three decades. The modest fall is unlikely to cause a drop in consumption, but it does suggest that spending growth will remain subdued. … Drop in wealth to weigh on spending …
18th March 2019
In the 2019 Budget, Finance Minister Bill Morneau is likely to announce some headline-grabbing policies to please voters ahead of October’s federal election. We doubt that they will amount to much in macroeconomic terms, however. … Budget 2019 unlikely to …
15th March 2019
The 1.4% monthly rise in manufacturing sales volumes at the start of the year will allay fears that Canadian GDP growth slowed even further in the first quarter. Growth is still set to be below potential, though, so the Bank is unlikely to put interest …
Recent declines in hours worked suggest that, despite decent gains in employment, slack is building in the labour market. That, in turn, is likely to limit any acceleration in wage growth. … Labour market slack growing beneath the …
13th March 2019
The 0.4% monthly drop in the Teranet House Price Index equates to a 0.1% fall in seasonally-adjusted terms. That pushed the annual pace of house price inflation below 2% and we expect it to remain subdued in the coming months. … Teranet House Prices …
The Bank of Canada admitted this week that it had been caught out by the broad-based nature of the recent economic slowdown. But its forecasts continue to envisage a strong rebound in growth, which we think is too optimistic. … Bank rows back from further …
8th March 2019
The further rise in employment in February will help to soothe fears that Canada’s economy slowed even further at the start of the year. While pay growth was also stronger than expected, the big drop in hours worked is a concern and means the Bank is …
The Bank of Canada has finally pulled its head out of the sand and acknowledged that the deteriorating economy no longer justifies higher interest rates in the near term. Although the Bank still expects its next move to be a rate rise, we think that it …
6th March 2019
Although December’s trade data were worse than expected, we doubt this will result in a downward revision to the fourth-quarter GDP data. But with global business surveys deteriorating in recent months, there is little reason to expect a pick-up in …
The negative outlook for oil prices, together with Canadian oil firms’ high debt levels, regulatory uncertainty and capacity constraints, suggest that energy investment will fall this year. … Oil rebound won’t prevent drop in energy …
5th March 2019
Canada is not at immediate risk of recession, but the chance of GDP growth rising back above potential in the second half of the year looks slim. We now expect growth to average just 1.0% in 2019. … No recession, but growth to remain …
4th March 2019
The Annual Capital and Repair Expenditures survey revealed that firms expect to raise their investment by 2.8% this year. However, with the economic backdrop deteriorating since the survey was carried out, we doubt that those plans will come to fruition. …
1st March 2019
On the basis of this latest set of woeful GDP figures, the Bank of Canada must surely be considering following the Fed and abandoning any talk of further interest rate hikes at next week’s policy meeting. GDP increased by only 0.4% annualised in the …
The decline in the global manufacturing PMI to a two-year low in January suggests that prospects for Canadian exporters have deteriorated further. On past form, the global PMI is broadly consistent with a stagnation in non-energy exports. Worse still, the …
28th February 2019
Given the weakness of the latest economic data, the Bank of Canada is set to remain on the side-line next week. It will probably reiterate that further interest rate hikes will eventually be needed, but we suspect that the Bank’s next move will be to cut …
27th February 2019
The Bank of Canada is unlikely to put a lot of weight on the sharp drop in headline inflation in January, given that it was caused by the notoriously volatile energy and airfare components. But if core inflation falls in the coming months, as we expect, …
Bank of Canada Governor Stephen Poloz used a speech this week to argue that relying on monetary policy alone to counteract economic downturns risks further stoking financial imbalances. While Poloz reiterated that the Bank intends to raise interest rates …
22nd February 2019
A rise in auto sales helped drive a better-than-expected outturn for retail sales in December. Sales volumes were unchanged over the fourth quarter, though, suggesting that consumer spending growth was weak. … Retail Sales …
Against the backdrop of slowing global demand growth, the high level of manufacturing inventories in Canada is an underappreciated downside risk to GDP growth. … High inventories a downside risk to …
21st February 2019
Temporary factors that boosted inflation in 2018 are fading and recent declines in unit labour costs growth suggest that core inflation will fall this year. That supports our view that the Bank of Canada’s next move will be to cut interest rates. … Core …
19th February 2019
Alberta’s oil production cuts have successfully reduced the Canadian oil price discount compared with US benchmarks, but their success has produced some unintended negative consequences. … Oil by rail exports plummet, USMCA hurdles …
15th February 2019
The unexpected slump in manufacturing sales in December was principally due to continued problems in petroleum refining, but the weakness extended well beyond that sector and suggests that Canada did not escape the sudden global industrial downturn at the …
14th February 2019
The 0.1% monthly decline in the Teranet House Price Index in January equates to a decent 0.4% m/m increase in seasonally-adjusted terms. But the annual pace of house price inflation dropped back to just 2.2%, and sales-to-new listing ratios suggest that …
13th February 2019
There seems little chance of Canada’s banking regulator greatly easing the severity of the mortgage stress tests introduced last year, but the government is considering helping first-time buyers in its 2019 budget. That would support the broader market, …
11th February 2019
Data this week confirmed that annual mortgage credit growth slowed to a 35-year low of just 3.1% in December, with the slowdown reflecting subdued home sales and lower house price inflation. More worryingly for the outlook, after some promising signs of …
8th February 2019
