Leading Canadian economists share their expectation for tomorrow's announcement
After the long Labour Day weekend, it’s back to work for the Bank of Canada ahead of Wednesday’s interest rate announcement, but is there much for them to do now?
Statistics Canada somewhat stole the central bank’s thunder when it announced Canada’s latest GDP data on Friday, revealing a slowdown in the second quarter following growth of 0.6% in the previous three months. The -0.2% annualized rate was far from the 1% growth estimate expected.
Housing investment, exports, and household spending all slowed while business investment and government spending increased.
Given the data, what do some of Canada’s leading economists think BoC governor Tiff Macklem and his team will decide to do with interest rates?
“The GDP data should reinforce expectations that the BoC will move back to the sidelines
and forego another interest hike [tomorrow],” wrote RBC Economics’ assistant chief economist Nathan Janzen in a client note. “… evidence is building that the lagged impact of earlier rate hikes are beginning to work more significantly to cool GDP growth and labour markets, and that should mean inflation pressures will continue to gradually slow.”
Scotiabank’s head of Capital Markets, Derek Holt, notes that the weaker GDP data is due to transitory shocks and expects a pick-up towards year-end. But he believes the BoC will give a full forecast in October’s MPR and will use the next month to digest the data.
“The Bank of Canada has the cover in the GDP data to stay on pause with a hawkish bias on Wednesday,” he said, adding that a rebound of the economy later may see the BoC returning to rate hikes as required.
Rate cut?
Desjardins’ senior director of Canadian Economics, Randall Bartlett, is less bullish on a rebound for the economy, and says that the BoC’s next move will be downwards.
“Taking the Q2 real GDP release into account along with a full suite of recent economic indicators should remove any doubt that the Bank of Canada will remain on the sidelines at next week’s meeting,” he said. “Indeed, today’s data reinforces our view that the Bank is done hiking for this cycle and its next move is likely to be a cut, possibly as early as the first quarter of 2024.”
Last week, CPA Canada chief economist David-Alexandre Brassard argued that a rate hike was not warranted, although this was before the GDP data was published.
The BoC will announce its next interest rate decision at 10am ET on Wednesday, September 6.
