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7 March 2019

Bank of Canada predicts longer period of economic slowdown than earlier expected

According to the central bank Deputy Governor Lynn Patterson, the period of a national economic slump may be longer than earlier expected, pushed by surprising weakness in household spending and investment. However, a rebound is still expected.

The day after the Bank of Canada changed its plans for future rate increases, Patterson said policy makers had a long discussion of the four-quarter data, that were weak in some segments, including business investment, real estate and consumption.

In her opinion, such weak results mean the economy may keep showing lower numbers during the first half of the year than the BoC predicted in January. However, Patterson called the data mixed and said the economy will probably still recover later this year, supported by a strong labor market. In January, the central bank predicted a rebound as soon as in Q2.

“While we can see the economy slowed down at the end of last year, that decline could stay for a longer period than expected,” - Patterson noted. “Nevertheless, we still predict an increase in Canadian economic growth later this year due to strong employment and growing wages.”

Although certain economists keep expecting a rate hike in 2019, investors see a higher chance of rate cut.

Patterson repeated yesterday’s statement on the economy requiring stimulus and rate hikes timing becoming highly uncertain.

In its Economic Progress Report, the Bank of Canada provides insight into rate discussion, following rate decisions which are not accompanied by new forecasts.

According to Patterson, the slowdown in Canadian growth turned out to be more significant and broad-based than expected. It came even despite strong growth in employment and labor income. Although modest results in the energy sector were mostly expected, other sectors showed surprising weakness.

However, Patterson also pointed to certain positives, e.g. a 6% gain in service exports and a moderate increase in mortgage credit growth.

In case of consumption, she believes one factor causing a slowdown is connected to weaker activity in real estate sales, but the BoC needs more information in order to determine all the factors.

 

 

 

 

 

 

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