Economy vulnerable to rate hikes
Economic growth looks set to remain healthy in the near term, which will prompt the Bank of Canada to raise interest rates twice more. But the Bank is underestimating both the extent to which construction activity will contract and the negative effects that higher interest rates will have on household spending. Both factors will weigh on GDP growth, which is set to slow from 2.1% this year to just 1.3% by 2020. That will eventually prompt the Bank of Canada to reverse course.