Several growth factors in the economy are set to moderate, according to one market outlook
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Around the world, outlooks for 2018 seem to be predicting a return to volatility and decelerating growth — and according to one forecast, Canada is no exception.
In its 2018 Global Market Outlook, strategists from Russell Investments have predicted “a fair bit of volatility … after a 2017 lull” for the Canadian market as investors start to consider the timing of the next recession. Projected to accompany the roughness in the market is modest growth as factors that have supported the Canadian economy’s last-half strength in 2017 begin to moderate.
“We believe many one-off factors boosting growth, such as the rebound in the energy sector and related activity from depressed levels post oil price collapse, coupled with sustained strength from housing and consumption, will normalize,” the strategists said. They added that stable to slightly higher prices, coupled with government spending, should combine with the other trends to result in GDP growth between 1.8-2.3% next year.
Given that growth, strategists at Russell Investments predicted that the Bank of Canada (BOC) would raise its target rate, but would limit its hikes based on its impact on the housing outlook as well as the US Federal Reserve’s target rate path. “Therefore, our base case calls for only one additional rate hike in 2018, though additional hikes will, in part, be conditioned on the prospective Fed rate path,” the strategists said.
Looking at the business cycle, they said economic growth is expected to support higher equity prices, with recession possibly becoming a 2019 concern. “Earnings growth, however, is expected to moderate to mid-single digit from roughly 20% in 2017,” they said, adding, that overzealous tightening from the BOC could pose a risk. “Overall, we believe the cycle is positive.”
Commenting on bonds, strategists said that monetary and inflation cycles are supportive of higher bond yields given moves from the Fed and BOC. Assuming a base case of three to four hikes by the Fed through 2018, which may be followed by the BOC, the strategists forecast that the Government of Canada 10-year yield will fall somewhere between 2% and 2.4% by the end of next year.
Related stories:
Bank of Canada makes interest rate announcement
Canadian economy gets surprise lift from jobs market
In its 2018 Global Market Outlook, strategists from Russell Investments have predicted “a fair bit of volatility … after a 2017 lull” for the Canadian market as investors start to consider the timing of the next recession. Projected to accompany the roughness in the market is modest growth as factors that have supported the Canadian economy’s last-half strength in 2017 begin to moderate.
“We believe many one-off factors boosting growth, such as the rebound in the energy sector and related activity from depressed levels post oil price collapse, coupled with sustained strength from housing and consumption, will normalize,” the strategists said. They added that stable to slightly higher prices, coupled with government spending, should combine with the other trends to result in GDP growth between 1.8-2.3% next year.
Given that growth, strategists at Russell Investments predicted that the Bank of Canada (BOC) would raise its target rate, but would limit its hikes based on its impact on the housing outlook as well as the US Federal Reserve’s target rate path. “Therefore, our base case calls for only one additional rate hike in 2018, though additional hikes will, in part, be conditioned on the prospective Fed rate path,” the strategists said.
Looking at the business cycle, they said economic growth is expected to support higher equity prices, with recession possibly becoming a 2019 concern. “Earnings growth, however, is expected to moderate to mid-single digit from roughly 20% in 2017,” they said, adding, that overzealous tightening from the BOC could pose a risk. “Overall, we believe the cycle is positive.”
Commenting on bonds, strategists said that monetary and inflation cycles are supportive of higher bond yields given moves from the Fed and BOC. Assuming a base case of three to four hikes by the Fed through 2018, which may be followed by the BOC, the strategists forecast that the Government of Canada 10-year yield will fall somewhere between 2% and 2.4% by the end of next year.
Related stories:
Bank of Canada makes interest rate announcement
Canadian economy gets surprise lift from jobs market
