Interest rate held but is the economy set to worsen?

by Steve Randall31 May 2018

The Bank of Canada held interest rates at 1.25% Wednesday but the pause on rates is unlikely to last long with many now calling for a July hike.

“With the economy set to outperform the Bank's earlier expectations and signs of life in all sectors bar housing, economic conditions favour another interest rate hike,” says Brian DePratto, senior economist at TD Economics. “While we may need a grammarian to distinguish between "cautious" and "gradual", the message was nevertheless clear: get ready for another rate hike. “

But despite Thursday’s GDP data expected to show a stronger Q1 than previously forecast, a new report this week suggests that most provinces will see a slowdown in growth this year.

The Conference Board of Canada believes that uncertainty over NAFTA, stalled oil pipeline projects, cooling housing markets and weak business investment, will all weigh on provincial economic growth.

“Weaker economic growth is forecast across the country, with only British Columbia, Prince Edward Island, Ontario and Quebec expected to see growth above 2 per cent this year,” said Marie-Christine Bernard, Director, Provincial Forecast, The Conference Board of Canada.

Where is growth set to be strongest?
British Columbia and Prince Edward Island will have the fastest growing provincial economies in 2018, with real GDP growth of 2.6% while Ontario and Quebec’s economies will advance at a more moderate pace of 2.2%.

Following growth of 4.9% in 2017, Alberta’s economy is forecast to expand by 1.9% this year. But, with the recent rally in oil prices, there are upside risks to the forecast.

Manitoba’s economy will benefit from strong population increases and numerous construction projects across various sectors but will see growth of 2.1 per cent in 2018 due to weak consumer spending at the start of the year, compared to 2.9% in 2017.

Saskatchewan’s economy is forecast to advance by just 1.3% due to declines in uranium production and weaker public-sector infrastructure spending.

Nova Scotia’s real GDP is forecast to rise by just 0.8% in 2018; New Brunswick will be limited to 1.3% growth this year and next as it struggles to grow its labour force with an aging population. Fuelled by accelerating oil production at Hebron, Newfoundland and Labrador’s real GDP is forecast to advance by 1.6% this year.

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