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The government’s fall fiscal update suggests the public finances will be in a better position in the coming years than we had assumed, but this is largely because the government chose not to deliver on any of its recent election pledges. If the government …
14th December 2021
The Bank of Canada’s updated policy framework will not have a material effect on policy over the next couple of years, but it does support our forecast that inflation will be slightly higher on average over the rest of this decade than it was in the …
13th December 2021
The Bank of Canada’s unchanged policy rate guidance implies it could wait until the third quarter before raising rates but, given wage growth is now picking up sharply, we expect it to pull the trigger in April. As the Bank updated its forward guidance …
8th December 2021
We are not convinced by the Bank of Canada’s view that the renewed strength of house prices is due to “extrapolative expectations”. With mortgage rates jumping recently, the large price gain in October may reflect buyers with pre-approved mortgages, at …
2nd December 2021
Price inflation in Canada and the US followed a similar trend in the 2010s, but we think the pandemic marked a turning point, and expect the former to remain lower than the latter. The October CPI data (see here ) confirmed that prices have increased by …
18th November 2021
We are doubtful that a significant share of households’ “excess” savings will be spent. Even if we are wrong, there are several other downside risks to the consensus forecasts for consumption growth, including the recent removal of financial aid to …
11th November 2021
The “fixed-weight” average hourly earnings series that the Bank of Canada is following appear to be understating wage growth, but should provide a more accurate picture over the rest of the year. The shifts in the composition of employment during the …
2nd November 2021
The Bank of Canada called time on its QE program today and indicated that it could raise interest rates as soon as the second quarter of next year. The Bank’s GDP forecasts still look too upbeat to us, however, so we expect it will wait until the third …
27th October 2021
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 …
14th October 2021
The sharp slowdown in economic growth in the past couple of quarters suggests that the probability of the Bank of Canada following other central banks in becoming more hawkish is low. The risk will rise, however, if the September Labour Force Survey shows …
6th October 2021
Due to the still high household saving rate, we have so far been sanguine about the risks posed by the winding down of benefit payments to households. But with goods shortages limiting the scope for other consumers to pick up the slack, there is a clear …
30th September 2021
There has been almost no change in the distribution of seats in Parliament following the election, but it seems likely that the minority Liberal government will press on with a modest loosening of fiscal policy. With 98% of the votes counted, Prime …
21st September 2021
We doubt that the outcome of next week’s federal election in Canada will have much bearing on the economy and the loonie. Instead, we still think that bond yield differentials and oil prices will be the main drivers of the Canadian dollar, and will push …
17th September 2021
Recent developments have prompted us to revise up our inflation forecasts for the coming few quarters, although we still expect inflation to decline to less than 2% in the second half of next year. The key reason why we are increasing our forecasts is …
16th September 2021
The costed election platform released by the Conservatives this week suggests that, if they were to form a government after this month’s election, they would run a similar fiscal policy to the Liberal Party. The opinion polls suggest that Prime Minister …
9th September 2021
There are some emerging downside risks to the economic outlook both domestically and globally but, after taking a well-anticipated pause at this meeting, we do not expect those risks to prevent the Bank from tapering its asset purchases at the next …
8th September 2021
We are not convinced by the Bank of Canada’s recent claim that CPI-trim and CPI-median are currently overstating underlying inflation, although their elevated level compared to CPI-common is mainly due to external factors that should prove at least partly …
26th August 2021
Distortions to the data mean it is hard to gauge the current pace of wage growth, but the business surveys suggest it will soon head back to pre-pandemic levels. Given the Bank’s upbeat view on the outlook for productivity growth, it may not be too …
11th August 2021
Our expectations for GDP growth and inflation this year are close to the consensus but, beyond then, we think both will be weaker than most expect. This is likely to feed through to a fall in the loonie and we have recently toned down our expectations for …
4th August 2021
The introduction of new CPI weights will prevent inflation from rising by as much as in the US but, with firms’ selling price expectations continuing to increase, the risks to inflation still seem to lie to the upside. Last month, we highlighted how the …
22nd July 2021
The Bank of Canada’s decision to continue tapering its asset purchases today came as little surprise and we continue to expect the Bank to bring the QE program to a close by the end of this year. With the Bank’s new GDP forecasts looking too optimistic to …
14th July 2021
Canadian firms are not currently suffering from labour shortages to the same extent as those in the US but, with immigration still muted, the issue is likely to get worse as the economy continues to recover. The clearest sign that labour shortages are not …
30th June 2021
The Bank did not provide any new hints about the direction of policy in its statement today but, with GDP likely to start growing strongly again this month as the coronavirus restrictions are lifted, we expect the Bank to cut the weekly pace of its asset …
9th June 2021
The Bank of Canada has voiced concern about the loonie although, following the signs of emerging inflationary pressures in April, it will probably be more welcoming of the disinflationary impact of the strong currency. Either way, the Bank’s concern about …
20th May 2021
We now expect inflation to surpass the upper limit of the Bank of Canada’s 1% to 3% range for most of the rest of the year, but we continue to think that it will drop back to less than 2% in 2022. The focus has been on US inflation this week and, after …
13th May 2021
The further strong rises in commodity prices present upside risks to our GDP forecasts, although the boost to growth is likely to be smaller than during previous periods of strong commodity price gains. The Bank of Canada’s commodity price index (BCPI), …
6th May 2021
The proposed national preschool system could increase the labour force, and therefore potential GDP, by 1.2%, but the impact will be spread over many years and might be dwarfed by changes to immigration. The headline policy in the 2021 Budget (see here ) …
28th April 2021
The Bank of Canada’s decision to trim its asset purchases and pull forward its guidance on interest rates confirms that it has become more upbeat about the economic outlook. We expect it to bring its QE program to a close by the end of 2021 but remain …
21st April 2021
The additional stimulus outlined in today’s Budget was in line with our expectations and, while a few of the proposals will raise eyebrows, the total package should help to support a strong economic recovery. The $101bn of fresh spending measures …
19th April 2021
House prices look increasingly vulnerable to future rises in interest rates. While the economy coped well the last time the Bank of Canada’s rate hikes shook the housing market in 2017 and 2018, the risks are greater now because residential investment …
13th April 2021
The Bank of Canada seems to have signalled that it will reduce the pace of its government bond purchases at its next meeting in April. We now expect it to bring its net purchases to zero by the end of the year. In a speech today, Deputy Governor Toni …
23rd March 2021
We expect inflation to hit 3.5% in April and then to sit at the upper end of the Bank of Canada’s 1% to 3% target range for most of the rest of the year. Given the likelihood that inflation will drop back to less than 2% in 2022, however, we do not expect …
18th March 2021
The Bank of Canada adopted a more upbeat tone in its latest policy statement but, given the slow vaccination program and the Bank’s concerns about the labour market, we doubt this is a signal that it will be reducing the pace of its asset purchase at the …
10th March 2021
While labour market conditions are probably not quite as strong as the Labour Force Survey (LFS) measure of employment suggests, they do not seem to be as weak as the Survey of Payrolls, Employment and Hours (SEPH) implies either. Ultimately, with the …
9th March 2021
Given our latest forecast for oil prices, we now expect the Canadian dollar to rise further in 2021 than we previously thought, but to drop back a bit in 2022. Despite already rising more than 15% against the US dollar from the last year’s low, we think …
25th February 2021
We think market participants are getting ahead of themselves by pricing in an interest rate hike from the Bank of Canada in 2022, particularly as Governor Tiff Macklem again signalled yesterday that the Bank will place greater emphasis on employment …
24th February 2021
Record low inventory should continue to drive strong house price gains in the first half of the year, but we expect house price inflation to slow beyond then as bond yields and mortgage rates start to rise. Home sales rose by a further 2% m/m in January, …
17th February 2021
The easing of the coronavirus restrictions will support a rebound in employment, but the recovery is likely to be slow going for the next few months due to limited progress with vaccinations. Admittedly, almost all restrictions will remain in place in the …
10th February 2021
The natural resources sector looks set to recover sooner than we previously thought, which should help to prevent GDP from falling in the first quarter despite the coronavirus restrictions and vaccine delays. The recent commentary has understandably been …
3rd February 2021
The Bank of Canada has signalled that it will wait until 2023 to raise interest rates and, despite our stronger forecasts for GDP growth, there are a few reasons why we expect it to stick to this pledge. Last week the Bank reiterated that it will “hold …
28th January 2021
The main change to the Bank of Canada’s policy statement today was a signal that the pace of its bond purchases will be reduced as the Governing Council gains confidence in the strength of the recovery. As well as keeping the policy rate at 0.25% and …
20th January 2021
The wide range of forecasts for house prices in 2021 shows that there is still a lot of uncertainty ahead. Nevertheless, given strong demand and low mortgage rates, our view is that prices will continue to rise. According to the Teranet index, house price …
6th January 2021
It is not just a strong recovery that could surprise some market participants in 2021; a change to the Bank of Canada’s mandate, a snap election, and several other events could also alter the economic backdrop. 1. GDP to surprise strongly to the upside. …
21st December 2020
Recent developments suggest that inflation will recover more strongly in 2021 than we previously thought. We now expect inflation to be above 2% for most of the year, before dropping back in 2022. Inflation was still low at 1.0% in November (see here ) …
17th December 2020
The key change to the Bank of Canada’s policy statement today was its commitment to “keep interest rates low across the yield curve”. This is in line with our view that, even as the economy rebounds strongly next year, the Bank will prevent the 10-year …
9th December 2020
The recovery is set to go into reverse in December amid the latest coronavirus restrictions, and we now think GDP will stagnate over the first quarter. But the high effectiveness of the first COVID-19 vaccines increases the chance that economic activity …
2nd December 2020
The government announced today that it expects to spend an additional $50bn this fiscal year to combat the damage from the second wave of the coronavirus. It also laid out plans for an investment-focused stimulus of between $70bn to $100bn, or up to 4.3% …
30th November 2020
Retail sales are likely to fall further behind those in the US amid the latest coronavirus-related restrictions, particularly because the Canadian data do a worse job at capturing online sales. Nevertheless, we still expect the longer-term recovery in …
26th November 2020
The high-frequency data suggest the targeted restrictions imposed last month have not weighed much on broader activity, but worsening COVID-19 outbreaks raise the risk that “circuit breaker” lockdowns will be imposed. This would greatly increase the …
19th November 2020
The rollout of an effective vaccine in early 2021 would cause us to pull up our growth forecasts for next year, but the boost to GDP in 2022 could be much smaller if the improved near-term outlook causes the government to carry out less investment …
10th November 2020