Canada

Canada Economics Weekly

Higher oil prices not a game-changer for the Bank

We are not convinced that the further rise in oil prices this week will be sustained. Even if we are wrong, we doubt that higher oil prices will cause the Bank of Canada to become much more hawkish.

15 October 2021

Canada Economics Update

Labour shortages now widespread

The expiry of the CRB this month may help to alleviate the shortages of unskilled labour, but there is little chance that the shortages of skilled labour will ease until immigration picks back up. And with vaccine mandates now being imposed across the country, there is a clear risk that the labour shortages get worse.

14 October 2021

Canada Data Response

Manufacturing Sales (Aug.)

Manufacturing sales volumes were a bit stronger than we expected in August, but the renewed cuts to production at auto production plants in September suggest that sales volumes fell again last month.

14 October 2021

Key Forecasts

Main Economic & Market Forecasts

%q/q ann. (%y/y) unless stated

Q2 2021

Q3 2021

Q4 2021

Q1 2022

Q2 2022

Q3 2022

2021

2022

2023

GDP

-1.1

3.7

6.0

4.8

4.2

3.2

5.0

4.0

2.0

CPI Inflation

3.4

3.9

4.0

3.7

3.0

2.0

3.2

2.6

1.9

Unemployment Rate (%)

8.0

7.2

6.6

6.2

5.9

5.8

7.6

5.9

5.6

Overnight Rate, End Peri’d (%)

0.25

0.25

0.25

0.25

0.25

0.25

0.25

0.50

1.00

10 Yr GoC., End Period (%)

1.39

1.40

1.75

1.80

1.85

1.95

1.75

2.00

2.25

CADUSD, End Period

0.81

0.80

0.80

0.80

0.79

0.79

0.80

0.78

0.76

Sources: Refinitiv, Capital Economics


Higher oil prices not a game-changer for the Bank

Canada Economics Weekly

17 October 2021

Our view

The imminent withdrawal of several emergency support programs for households and firms is an underappreciated downside risk to the near-term outlook, and we think the economy will struggle to meet consensus expectations in 2022 as residential investment declines further. Reflecting these factors, as well as the still-moderate pace of wage growth, we doubt the Bank of Canada will take a hawkish turn at its policy meeting this month. We continue to expect the Bank to wait until the fourth quarter of 2022 before it raises interest rates, which is later than markets are pricing in.

Latest Outlook

Canada Economic Outlook

Consumption to drive recovery

The lifting of restrictions and ongoing policy support should translate into a sustained period of above-potential GDP growth, driven by consumption and business investment. We expect GDP growth of 6.3% in 2021 and 4.0% in 2022, followed by a slowdown to less than 2% in 2023, as excess capacity is eliminated and higher interest rates weigh on residential investment.

15 July 2021