Earlier this month 40 economists participated in a Reuters poll which showed that the Bank of Canada is not likely to hike interest rates until the end of next year. In addition, the possibility of a rate decrease was listed at 40%. The reason for this is our sluggish economy and worldwide trade tensions.
The Bank of Canada remains upbeat despite this gloomy outlook from economists, stating that it anticipates the Canadian economy bouncing back later this year, a sentiment not shared universally. One participant in the poll, Morgan Stanley, stated, “We see little impetus for policymakers to resume rate hikes over our forecast horizon, as sluggish growth and lingering slack in the economy will continue to warrant leaving some policy accommodation in place.”
The Bank is likely to have to start making cuts to interest rates if the economy doesn’t improve. “If growth fails to show any convincing signs of a rebound in 2019,” Stanley continued, “we think the risks of rate cuts will increase, and given our sluggish outlook, we place a subjective 40 per cent probability that the BoC will deliver at least one 25 basis point rate cut over the next 12 months.”
The US-China trade agreement has kept Canada’s economy on the edge of its seat. According to another Reuters poll taken earlier this month the chances that we’ll see the US go into a recession has increased. As Canada’s largest trading partner, a recession south of the boarder would be bad news for our own economy. A Reuters poll from April show that the likelihood we will see Canada head into a recession in the next 12 and 24 months is 20% and 27.5% respectively.
A few speculators believe that the economy will pick up and that we may even see up to two interest rate hikes by the end of next year, but the majority agree that we we’ll be seeing downward movement if any at all.
As for housing, a Reuters poll performed earlier this month showed that prices will remain unchanged until next year when they will increase by 1.7%.