Big six bank economist says weakness in the Canadian economy is overstated by some
One of Canada’s leading economists is calling out those who are trash talking the Canadian economy and warning of the risk of further rate hikes.
Scotiabank head of Capital Markets Economics, Derek Holt, says the resilience in the economy and “no durable evidence of a soft patch in underlying inflationary pressures” means that it is “highly premature to even be talking about rate cuts while hike risk has by no means gone away.”
In his latest commentary on economic indicators, Holt says that the naysayers are overstating the weakness in the economy, despite a solid start for 2024 off the back of growth in the fourth quarter of 2023, based on estimates using November’s better-than-expected Statistics Canada flash GDP estimate (0.2% m/m SA); and preliminary data suggesting that December’s GDP showed the strongest growth since May (0.3% m/m SA).
Holt also says that “the economy is not in recession by any definition” and is expecting Final Domestic Demand figures to show resilience throughout 2023.
And for those that are waving red flags on per capita GDP, the economist says that it is too soon to see how Canada’s “immigration experiment” will play out. Strong immigration together with soft growth are factors in a downward trend for per capita GDP.
“While I think it’s prudent to be cautious, some of the comments I’ve seen that are ringing alarm bells on per capita GDP are excessively alarmist,” Holt noted. “Further yet, some of them sound down right politicized in nature and they totally ignore transitory shocks without which growth would be stronger.”
Rate hike risk
With wage growth still high and prices pressured by soaring shipping costs due to the Middle East tensions, Holt is holding firm on his view that the Bank of Canada may disappoint those expecting early rate cuts and could go the other way.
“I'm still standing by my hike risk narrative, and at a minimum, the strong risk that the BoC lags the Fed and goes slower because inflation risk is higher north of the border than south,” Holt warned in his commentary.
