A Reuters poll taken by 40 economists last week has shown that the Bank of Canada will not likely increase interest rates again until the end of 2020. Additionally, there is a 40% chance that we will see them make cuts to rates. The poll cited continued slow economic growth and global trade tensions as reasons for the stagnation.
Despite this gloomy outlook the Bank of Canada remains optimistic, stating that it expects to see the Canadian economy make a rebound in the second half of this year. But not everyone believes them. Morgan Stanley, a participant in the poll, wrote, “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.”
If the economy doesn’t pick up, the Bank of Canada is likely to have to start making cuts. Stanley continued with, “If growth fails to show any convincing signs of a rebound in 2019, 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.”
One major issue that has kept the Canadian economy on edge is the US-China trade agreement. Another Reuters poll taken earlier this month showed that the chances of a US recession has risen. As the USA is Canada’s largest trading partner this spells bad news for our own economy. An April Reuters poll showed that the chances of Canada falling into a recession in the next 12 or 24 months were at 20% and 27.5% respectively.
While most speculators agree that we are not likely to see any movement on interest rates (unless it is downward movement) there are a few who expect the Canadian economy to pick up and that we will see one or two rate hikes by the end of 2020.
With regards to the housing market, another Reuters poll taken this month showed that housing prices are likely to stay as they are for the remainder of the year and then to increase by 1.7% next year.