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12 March 2019

Some economists believe we’re one step away from recession

David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates, says the Bank of Canada needs to cut interest rates, as we’re only one step away from a recession.

According to Rosenberg, the BoC has to change the rates amid the new times, otherwise it risks missing out the right moment.

“We’ve just seen two quarters in a row with negative growth in demand. In other words, if it’s not the recession yet, it’s only one step away from it”, - he said.

“What are the options in such conditions? First of all, it’s important to shift from a tightening tone to a neutral one, and it’s been done already.

Now they are talking about margin in a more dovish manner, so the next decision should be cutting interest rates."

Answering the question about the possible outcomes of cutting rates amid high household debt levels, Rosenberg said Canadians could use some help from lower rates in servicing those debts.

“Who could complain about the central bank cutting rates when the economy keeps showing very weak growth and inflation goes down below the Bank’s targets. In my opinion, it’s a reasonable decision”, - he noted.

As you know, the BoC has raised interest rates five times since July 2017, and the previous hike was in October.

Although February showed good job performance, Rosenberg says the data doesn’t show a full picture of the labour market, which has been passive for the past 14 months.

“It seems that the focus in Canada is only on the pace on job creation, and no one cares about the fact that while we do hire more people, we’ve started spending less time at work”, - Rosenberg said.

“The work week fell by 0.7% in February, which is the same as if we lost 130,000 jobs.”

Moreover, the number has been dropping for the previous three consecutive months (with an annual pace of more than 4%) – it’s the first time since the summer of 2009.

 

 

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