Slow growth may stunt rate hikes

December 4, 2018

A widening slump in oil prices, shut downs in the auto industry and an overall slowing Canadian economy may convince the Bank of Canada to forego further interest rate hikes this year, some mortgage analysts suggest.
Statistics Canada’s third quarter GDP figures indicated an expected slowdown to 2.0 per cent growth compared to a 2.9 per cent pace in the second quarter. Over the first three quarters of this year, quarterly growth has averaged 2.2 per cent—down from the 3.0 per cent annual growth recorded in 2017.
While the headline growth of 2.0 per cent is on trend, the details of the report are troubling. The bulk of the growth last quarter came from a contraction in imports, leaving final domestic demand negative for the first time since early 2016. ”The softness in imports reflected a contraction in refined energy products as well as aircraft and other transportation equipment,” noted Dr. Sherry Cooper, chief economist with Dominion Lending Centres.
She added that residential investment slumped 5.9 per cent in the third quarter, compared to a year earlier—the biggest decline since 2009.
“The two largest export sectors in Canada are energy and autos, so weakness in these sectors will keep the Bank of Canada on the sidelines in December, notably as consumers may well be tapped out,” Cooper said. Markets had been expecting a rate hike in January, but the latest data suggest that the prospects of such a move have dropped significantly, she added.