Canada Economics Focus

Canada Economics Focus

Tackling climate change will be costlier than elsewhere

Over the next few years, there is potential for increased “green” investment to more than offset the negative economic effects of measures such as further carbon tax hikes. But given the economy’s reliance on fossil fuel extraction, it is hard to take such a rosy view of the longer term and, as the fight against greenhouse gas emissions intensifies, GDP is likely to suffer more than elsewhere.

26 May 2021

Canada Economics Focus

What if households unleash their savings?

Due to lower spending and the generosity of government transfers, households are set to save $200bn more in 2020 than in 2019. With that rise equivalent to 14% of consumption, there are upside risks to our already above-consensus GDP growth forecasts if households are quick to start spending again.

15 December 2020

Canada Economics Focus

Lasting blow to supply capacity is not inevitable

It is by no means inevitable that the coronavirus crisis puts a big permanent hole in the supply capacity of economies (i.e. their ability to produce goods and services). With the right government policies, many economies should be able more or less to revert to the path of output they were on before the crisis. Nonetheless, with demand likely to be slow to recover fully, this could still take several years. And there will be several important exceptions to this generally optimistic picture.

29 June 2020
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Canada Economics Focus

How will the Bank respond to the next downturn?

The risk of a recession is arguably higher in Canada than elsewhere and the low level of interest rates limits the ability of the Bank of Canada to respond. Even if the Bank utilises unconventional policy tools, any subsequent recovery would be slow if it is not also accompanied by a strong fiscal policy response.

Canada Economics Focus

Core inflation set to drop back

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.

Canada Economics Focus

High debt burdens mean rate hikes will hit hard

The large build-up in private sector debt over the last decade means that the Canadian economy is far more sensitive to interest rate rises than in the past. This increases the likelihood that the Bank of Canada’s rate hikes could trigger a potentially severe downturn in both housing and the wider economy.

Canada Economics Focus

Core inflation likely to remain below 2% target

Although some measures have edged higher in recent months, we doubt that core inflation will return to the 2% inflation target anytime soon. Even if the output gap closes by the end of this year, the past appreciation of the Canadian dollar and muted wage cost pressures will keep core inflation in check.

Canada Economics Focus

Lower Canadian dollar points to rebound in inflation

Although inflation has been uncomfortably low for some time now, the risk of a slide into deflation is still fairly modest. Long-term inflation expectations remain well anchored and the Canadian dollar's recent slump will soon begin to have a more discernible impact on consumer inflation, pushing it back towards the mid-point of the Bank of Canada's 1% to 3% target range.

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