B of C RATE LIKELY UNCHANGED... FOR NOW
Canadian Real GDP Growth (Q2'2019),
August 30 2019
The Canadian economy rebounded in the second quarter, surging at an annual rate of 3.7 per cent. That follows two quarters of lackluster sub-1 per cent real GDP growth. Growth was primarily led by a recovery in export volumes which masked underlying weakness in domestic demand, which actually declined as household spending slowed and business investment declined.
Despite a solid second quarter growth, we are forecasting that the Canadian economy will expand by only 1.5 per cent this year, a slight deceleration from 1.8 per cent growth in 2018. Moreover, inflation remains closely tied to its 2 per cent target, and unemployment remains very low, which should translate to a sidelined Bank of Canada. That said, risks to the economy are very clearly tilted to the downside. The US continues to flirt with potentially disastrous trade wars and global financial markets are anticipating a US recession in the next twelve months. Should those fears be realized, the next move by the Bank will certainly be to lower its overnight rate.