Bank of Canada downgrades economic outlook

The Bank of Canada held the overnight rate at 1.75% at today’s meeting. While the result was widely expected, the tone of the statement, as well as the press conference, were more downbeat than anticipated.

The outlook for the global economy was described as weakening further and the Bank of Canada (BoC) suggested that Canada will not be immune from slower global economic growth. The statement went as far as referencing that a growing number of countries are easing monetary policy to support their economies. Canadian employment growth was described as strong, and wage inflation has picked up, along with housing activity. Consumer spending has been choppy, and business investment remains weak, as the oil shock from several years ago continues to weigh on the economy.

The BoC projected GDP growth to be somewhat slower in 2020 (from 1.9% to 1.7%) and 2021 (from 2.0% to 1.8%). The inflation outlook remained near the current 2.0% level. Household spending is expected to be supported by increasing wage growth. However, high levels of consumer debt will keep the consumer somewhat cautious. The recent Canadian elections did not appear to have a significant impact on the BoC economic outlook.

While the BoC did not indicate any intention to ease monetary policy in the immediate future, it is evaluating the events that would be required for it to do so. They remain concerned about slowing global growth and are unsure how long strength in Canadian employment growth and housing can be the sole components keeping the economy rolling along. While not having an explicit easing bias, they appear to be moving in that direction. I believe the BoC’s outlook should remain positive for bonds and stocks, while negative for the Canadian dollar.