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Canada Economics Update

Housing Watch (Aug.)

Home sales fell further below the pre-pandemic norm in July and pre-construction sales seem to have fallen through the floor, but there is no evidence yet that this is weighing on construction.

16 August 2022

Canada Data Response

Consumer Prices (Jul.)

The fall in headline inflation to 7.6% in July left it lower than the Bank of Canada’s recent forecast but, amid continued broad upward pressure on core prices, we still judge that the Bank is more likely to opt for a 75 bp interest rate hike in September rather than drop down to a 50 bp move as many now expect.

16 August 2022

Canada Data Response

Manufacturing Sales (Jun.)

Manufacturing sales volumes only inched up in June and, with the manufacturing surveys on both sides of the border weakening in recent months, the outlook is growing even more challenging.

15 August 2022

Key Forecasts

Main Economic & Market Forecasts

%q/q ann. (%y/y) unless stated

Q2 2022

Q3 2022

Q4 2022

Q1 2023

Q2 2023

Q3 2023

2022

2023

2024

GDP

4.8

2.4

1.5

0.5

0.5

1.3

3.7

1.3

2.0

CPI Inflation

7.5

7.8

7.4

6.0

3.2

1.7

7.2

3.0

1.5

Unemployment Rate (%)

5.1

4.9

5.1

5.4

5.7

5.7

5.2

5.6

5.5

Overnight Rate, End Period (%)

1.50

3.25

3.50

3.50

3.50

3.50

3.50

3.00

2.50

10 Yr GoC., End Period (%)

3.23

2.75

2.75

2.60

2.50

2.35

2.75

2.25

2.25

CADUSD, End Period

0.77

0.76

0.74

0.73

0.73

0.72

0.74

0.71

0.71

Sources: Refinitiv, Capital Economics


Inverting to a hurting?

Canada Economics Weekly

27 November 2022

Our view

Very stretched house prices and the elevated level of residential investment make Canada especially vulnerable to the most aggressive global policy tightening cycle in decades. With the Bank set to continue hiking its policy rate to 3.5% by October, from 2.5% currently, we expect GDP growth to slow toward zero over the first half of 2023, as house prices fall by 20%, and there is a real risk of recession.

Latest Outlook

Canada Economic Outlook

Increased risk of recession

The Bank’s aggressive policy tightening will weigh heavily on domestic demand, with consumption growth set to slow sharply while residential investment plunges back to pre-pandemic levels. There is scope for the economy to avoid recession if exports rebound as we expect, but it will be close, with GDP barely growing at all over the first half of 2023. Growth should pick up again in 2024, however, after the sharp fall in inflation that we forecast allows the Bank to loosen policy again.

20 July 2022