Where will interest rates go?
Canadian Economic Growth - March 1, 2016
The Canadian economy slowed
substantially
in the fourth quarter as growth was pulled down by renewed pressure on energy
prices. Canadian real GDP, that is economic output adjusted for inflation, was
just 0.8 per cent higher in the fourth quarter following a 2.4 per cent
expansion in the third quarter. Economic growth was led by a 1 per cent increase
in household consumption, a 1.5 per cent increase in government
expenditures and nearly 2 per cent growth in residential construction. The lower
Canadian dollar also helped improve Canada's trade balance, as imports declined
close to 9 per cent. Real GDP growth for all of 2015 registered just 1.2 per
cent.
The Canadian economy was sluggish throughout 2015
and the outlook for growth in 2016 looks to be fairly similar. Absent a major
turnaround in oil prices, the national economy will continue to be dragged down
by slow growth or even recessions in energy producing provinces. We
expect that economic growth in 2016 will be about 1 per cent before picking up
in 2017. Slow growth likely means tempered inflation and little ability for
households to support higher interest rates. Therefore, we expect the Bank of
Canada to remain on the sidelines throughout the year, placing the emphasis on
fiscal policy to boost growth.