According to a Reuters poll taken earlier this month, 40 economists predict that the Bank of Canada will not increase interest rates until the end of 2020 and that there’s a 40% chance we will see them decrease interest rates. Their rationale? The Canadian economy continues to be sluggish and world trade tensions remain unsettled.
The Bank of Canada however does not share the same bleak outlook. The Bank expects that we will see the economy rebound in the second half of 2019, but it isn’t a sentiment shared by everyone. One of the poll’s participants, Morgan Stanley, 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.”
In fact, if the economy doesn’t pick up the Bank may be forced to lower interest rates rather than leaving them alone. Stanley continued by saying, “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.”
Frequently the Canadian economy takes its cues from the US economy. This is because our neighbours to the south are our biggest trade partners. If their economy takes a nose dive into a recession (as another Reuters poll from earlier this month shows is more and more likely to happen) Canada’s economy will be directly impacted. According to a Reuters poll taken last month Canada is 20% likely to enter a recession in the next 12 months and 27.5% likely in the next 24 months.
The most common sentiment is that we won’t be seeing any change to the Bank’s interest rates, but there are a few who have high hopes for growth. A few speculators expect to see the Canadian economy pick up and that we may even see up to two interest rate hikes by the end of 2020.
As for housing prices, another Reuters poll taken earlier this month showed that prices are expected to stay the same for the remainder of the year and increase by 1.7% next year.