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Although core inflation is dangerously low and wage growth anaemic, the Bank of Canada’s decision to hold its policy interest rate at 0.50% can be justified on the recent improvement in the activity data. But with non-energy exports still misfiring, …
1st March 2017
The recent slowdown in all three new core inflation measures suggest that the excess slack in the economy is building. The core CPI-common measure, which tracks the output gap most closely is of particular concern. The Bank of Canada expects …
28th February 2017
The potential changes to US trade balance statistics being considered by the US administration has raised eyebrows in Canada. But no matter how Trump’s administration wants to tweak the data, the US trade deficit with Canada is simply far too small to be …
24th February 2017
The headline inflation rate rose to 2.1% in January, up from 1.5%, largely because of higher gasoline inflation. While some of those gains will be reversed in February, the Bank of Canada will be much more focused on the weakness in core inflation. … …
We expect the Bank of Canada to hold its policy interest rate at 0.50% next week. Although core inflation and wage growth have slowed, activity and business confidence data have been more positive lately. Additional monetary stimulus later this year, …
22nd February 2017
Toronto’s growing housing bubble is being blamed on desperate first-time buyers chasing a dwindling inventory of homes for sale, but that’s a red herring. The truth is that it’s mainly being driven by move-up buyers leveraging the equity in their existing …
17th February 2017
The manufacturing sector ended last year in spectacular fashion, with sales volumes rising strongly for a second consecutive month in December. This strength is partly due to a rebound in the petroleum refinery industry, however, with export-orientated …
15th February 2017
The annual rate of national house price inflation rose to a ten year high of 13.0% in January, up from 12.3%, in large part due to the speculative housing boom in Toronto. That boom will continue to inflate price gains in the coming months. … …
14th February 2017
While the housing investment boom helped support the economy through the oil shock last year, the further deterioration in housing affordability will likely cost the economy in the longer run. The abrupt slowdown in Vancouver’s housing market serves as a …
10th February 2017
The impressive run of headline employment gains continued this year, with 48,300 jobs added in January, which is further evidence of a meaningful economic recovery in the second half of last year from the oil shock. (See Chart.) The next big challenge for …
December’s trade report confirmed that, even with the benefit of a weaker Canadian dollar, export volumes barely grew last year, which is further evidence of the structural competitiveness challenges. Rising US trade protectionism could make matters worse …
7th February 2017
Incoming data indicate that the economy has emerged from the oil price shock, with encouraging signs in business confidence pointing to faster economic growth over the next six months. As things stand now, the risks around our annual GDP growth forecast …
3rd February 2017
The 0.4% m/m increase in November GDP was broad-based, with manufacturing, mining, construction, retail and finance all recording solid gains. The only negatives were a weather-related 3.0% m/m decline in utilities and a 0.2% m/m fall in real estate. … …
31st January 2017
Canada has a strong hand to play in the upcoming negotiations over the NAFTA agreement. With Canadian-US trade broadly balanced and the US reliant on Canadian energy exports, we suspect that the Trump administration will continue to focus its efforts on …
27th January 2017
US President Donald Trump’s inauguration speech, in which he pledged to always put America first, was potentially bad news for Canada. Trump has indicated that he wants to begin an almost immediate renegotiation of NAFTA, with US-Canada discussions to …
24th January 2017
Bank of Canada Governor Stephen Poloz surprised the markets last week with his admission that an interest rate cut was still “on the table” if one of the Bank’s downside risks became reality. The risks he identified, however, were nearly all US-related, …
20th January 2017
Consumer prices increased by 0.3% m/m seasonally adjusted in December, which was enough to push the headline CPI inflation rate back up to 1.5%, from 1.2%, but the big story is still the weakness of core inflation. … Consumer Prices (Dec.) & Retail Sales …
Manufacturing sales rebounded by an encouraging 1.5% m/m in value terms in November and 1.2% m/m in volume terms, led by gains in primary metals, petroleum goods and chemicals. Based on the already reported recovery in non-energy exports in November, the …
19th January 2017
Given the considerable uncertainty surrounding exactly what policies the incoming Trump administration will pursue south of the border, we have every sympathy with the Bank of Canada’s decision to leave interest rates unchanged today. Nevertheless, as the …
18th January 2017
With commodity prices and interest rate differentials pulling the Canadian dollar in different directions again this year, our baseline scenario is that it will remain broadly unchanged, increasing only trivially from its current level to $0.77 by …
13th January 2017
The unexpected decline in monthly GDP in October, together with the moderation in the new measures of core CPI inflation, might have prompted the Bank of Canada to reconsider cutting interest rates at next week’s policy meeting. But the recent strength of …
12th January 2017
Even allowing for the rebound in real exports in November, the 0.3% m/m decline in monthly GDP in October means that fourth-quarter GDP growth was probably 1.0% annualised or less, putting it well below the Bank of Canada’s already modest 1.5% forecast. …
6th January 2017
The massive 54,000 increase in employment in December continued the barely believable run of job gains over the past few months. The economy added 108,000 jobs in the fourth quarter, the most since the second quarter of 2010. … Labour Force Survey (Dec.) …
The worrisome 0.3% m/m decline in October GDP was much weaker than expected, suggesting that the economy can’t cope with lower commodity prices, despite the lower Canadian dollar. Unfortunately, with a potentially severe housing downturn looming on the …
23rd December 2016
Nowhere is the lingering damage to the economy caused by the commodity price slump more evident than in the labour market. Unemployment is still rising sharply in the worst-affected regions, while employment gains elsewhere have been concentrated in low …
22nd December 2016
The further softening in core inflation in November to 1.3%, from 1.4%, suggests that there is more downside risk to the Bank of Canada’s inflation rate outlook, which is consistent with our view that an interest rate cut is coming in the first half of …
The underlying momentum in the economy remains sluggish and circumstances aren’t likely to improve next year, mainly because of a worsening downturn in housing investment. We expect GDP growth to be only 1.2% in 2017, down slightly from an already muted …
20th December 2016
The 3.5% annualised rebound in third-quarter GDP, after the 1.3% contraction in the second quarter caused by wildfire-related disruptions to oil production, is encouraging, but the underlying momentum in the economy hasn’t improved much recently. (See …
19th December 2016
While it continues to warn about growing housing imbalances and risky mortgage lending, the Bank of Canada still believes there is only a low probability of a major housing correction happening anytime soon. That assessment looks very odd now, considering …
16th December 2016
The large drop in manufacturing sales volumes and the slip in inventories in October indicate that economic growth slowed sharply at the start of the fourth quarter. Accordingly, the risks around the Bank of Canada’s GDP estimate of 1.5% annualised growth …
15th December 2016
The annual house price inflation rate edged up to 11.9% in November, from 11.8%, driven by a further acceleration in Toronto’s red-hot housing market. While that trend might continue in the near term, tougher new mortgage rules and rising mortgage are …
14th December 2016
Despite the fallout from the slump in oil-related business investment, the service sector enjoyed relatively strong growth over the past two years, mainly because of an acceleration in housing investment. But with housing investment falling now and …
9th December 2016
After seriously considering an interest rate cut back in October, the Bank of Canada gave no strong indication in today’s policy statement that it was considering a rate cut in the near term. There were a few dovish hints, however, that suggest it is …
7th December 2016
The decline in export volumes in October, following the sharp fall in the month before, suggest that export growth this quarter might turn out a lot weaker than even we had assumed. Accordingly, the balance of risks around our fourth-quarter GDP forecast …
6th December 2016
The rebound in third-quarter GDP mainly reflects volatility in energy production rather than any fundamental improvement in the economy. Excluding energy, GDP has been growing at less than 1% annualised over the past two quarters and we aren’t optimistic …
2nd December 2016
The unexpected 10,700 increase in employment in November was driven entirely by gains in part-time work, while the decline in full-time jobs provided futher evidence that the economy is still struggling to generate quality jobs. Even though employment is …
The rebound in third-quarter GDP likely means that the Bank of Canada will leave its economic projections and policy interest rate unchanged next Wednesday. But policymakers will still have doubts about the underlying strength of the economy, especially …
30th November 2016
Although we won’t know the outcome of this week’s Supreme Court hearing until (probably) January, whichever way it goes, the Government may still be able to trigger Article 50 by March 31st. That said, with the EU’s chief negotiator highlighting the tight …
The continuing sluggish performance by export-orientated manufacturers this year is another reason to believe that the Bank of Canada will reduce interest rates soon. In contrast to market expectations, we think that the odds of another rate cut within …
29th November 2016
The latest corporate profit figures show that, despite the energy-related rebound in the third-quarter, the economy isn’t out of the woods yet. While higher oil prices in the short term will help the energy sector gradually recover, a slower pace of …
25th November 2016
The economy has recovered from the temporary disruption caused by the wildfires earlier this year and the slump in mining-related investment, triggered by the collapse in oil prices last year, is finally fading. Unfortunately, the housing downturn, which …
22nd November 2016
The 0.6% m/m gain in retail sales volumes in September is encouraging but, given the already reported 1.5% m/m slump in wholesales sales volumes that month, the economy still ended the third quarter on a soft footing. Nevertheless, the energy-driven …
Although the Canadian dollar has weakened further lately, financial conditions overall appear to be tightening now because of rising market interest rates and new stricter mortgage rules. Given the significant imbalances in the household sector that pose …
18th November 2016
The continued softness in core consumer prices in October suggests that the downside risk to the Bank of Canada’s core inflation rate projection is growing, which is consistent with our view that an interest rate cut is coming in the first half of next …
The better than expected 0.3% m/m increase in manufacturing sales in September was overshadowed by the disappointing drop in sales volumes, hinting that the economy ended the third quarter on a weak footing. Nevertheless, the stronger showing in the two …
16th November 2016
The national house price growth rate edged up to 11.8% in October, from 11.7%, driven entirely by Toronto’s hot housing market. While we expect that trend to continue in the very near term, stricter mortgage qualifying rules, which took effect last month, …
15th November 2016
The rebound in financial markets following Donald Trump’s conciliatory acceptance speech is a positive sign for Canada’s economy. But his personal volatility and still potentially harsh views on trade policy shouldn’t be dismissed on the basis of one …
11th November 2016
The reaction in financial markets to Donald Trump’s surprising US election victory has been limited so far, thanks in large part to the surprisingly conciliatory tone of his acceptance speech this morning. But we still worry about the threat of …
9th November 2016
The Liberal government’s plan to create a national infrastructure bank is a recipe for greater bureaucracy rather than a remedy for improving longer-term economic prospects. Existing public agencies tasked with infrastructure development can already raise …
4th November 2016
The unexpected 43,900 increase in employment in October was driven entirely by gains in part-time work, which is more evidence that the economy is struggling to generate quality high-paying jobs. Even though headline employment is rising, overall income …
