By Gordon Isfeld
OTTAWA (MaceNews) – The Canadian economy appears to be settling into a slower-but-steadier pattern of growth, with inflation remaining relatively unchanged and policymakers maintaining their interest rate target at 1.75%.
“A growing number of countries have responded with monetary and other policy measures to support their economies,” the Bank of Canada said Wednesday in its quarterly Monetary Policy Report.
Even so, global economic growth is expected to slow to below three per cent this year – the weakest pace of output since the 2007-09 crisis – before edging up over the next two years, according to Canadian policy makers.
“Canada has not been immune to these developments,” according to the Bank of Canada.
“Commodity prices have fallen amid concerns about global demand. Despite this, the Canada-U.S. exchange rate is still near its July level, and the Canadian dollar has strengthened against other currencies.”
Still, the domestic economy is forecast to strengthen, according to the central bank in its latest MPR.
The Bank of Canada, headed by BoC Governor Stephen Poloz, expects growth of 1.5% this year – up from the previous estimate of 1.3% – followed by an increase of 1.7% in 2020 and a gain of 1.8% the next year.
Compare the domestic growth to that of United States – Canada largest trading partner – which isforecast to grow 2.3% this year, but likely to ease to 1.9% in 2020 and 1.7% in 2021,and which the U.S. is currently embroiled in a trade dispute with China.
“Although negotiations have recently shown some signs of progress, global uncertainty has been increasing,” according to the Bank of Canada.
“These factors have contributed to a further deterioration in growth prospects and a fall in commodity prices. In response to weaker outlooks and lower inflation expectations, many central banks have eased monetary policy. These central bank actions have helped maintain financial conditions that support growth.”
Meanwhile, the domestic picture “has held up reasonably well, in the face of trade uncertainty and financial market volatility,” said Benjamin Reitzes, at Canadian Rates & Macro Strategist at BMO Capital Markets.
“The labour market is arguably the most positive aspect of the Canadian economy. Job growth is running at the best level in over a decade and the unemployment rate is the lowest in at least 44 years, leaving little debate that the labour market is tight as a drum from a national perspective.”
Meanwhile, the Bank of Canada’s mandate is to keep inflation at 2%, “and that’s where it’s been for most of this year,” added Reitzes, at BMO Capital.
“Core CPI has hovered around target for nearly two years, and shows no signs of moving materially in either direction. In fact, the bank is one of the only developed world central banks that can boast of inflation being on target. Not surprisingly, the BoC is also one of the few central banks not easing policy at the moment,” he said.
“All told, there are few reasons for the BoC to turn more dovish and follow the Fed’s lead on easing,” added Reitzes. “Unless the economy takes a turn for the worse, the U.S.-China trade deal falls apart and or the Canadian dollar rapidly appreciates, look for the BoC to remain comfortably on the sidelines.”