Canadian Economy – Down But Not Out

by Ryan Lewenza, CFA, CMT, Private Client Strategist, Raymond James

• This week the Bank of Canada (BoC) released its quarterly Monetary Policy Report (MPR) outlining their updated economic views while also announcing their interest rate decision to keep the benchmark rate unchanged at 0.75%.

• The material decline in oil prices is providing a significant headwind to the Canadian economy. The BoC expects the hit to the economy from low oil prices to be “front-loaded” with zero growth in Q1/15, which is down from their earlier estimate of 1.5% growth. However, they expect economic activity to improve in Q2 to 1.8%, followed by 2.8% and 2.5% for Q3 and Q4, respectively.

• The BoC sees a stronger H2/15 and 2016 on the back of a stronger US economy, rising net exports, and easing financial conditions.

• Our assessment of the MPR was of a more upbeat BoC, with the central bank expecting an improvement in economic activity in the coming quarters. Given this view we believe another rate cut is unlikely, with the next BoC move likely to be a hike sometime in 2016.

• We share a similar view with the BoC expecting 2015 GDP growth of 2% (in line with the BoC) and for growth to improve in H2/15. We see our economy gradually improving in the H2/15 on the back of a stronger US economy, weaker Canadian dollar, and rebounding oil prices (see Chart of the Week).

Read/Download the complete report below:

Weekly Trends April 17, 2015(1)

Copyright © Raymond James

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