Two Steps Forward One Step Backward
The change in tune in the latest press release from the Bank of Canada signals that the Bank actually does not know why exports are underperforming. Some of the reasons why the Bank lowering its outlook are mostly concern of global economic recovery and problems in our country.
Background
In July 2016, the Bank of Canada published its monetary policy report. The GDP chart in the report predicted a positive growth in the upcoming year. The Bank trusted that the growth in non-commodity export, American economic recovery and also rise in tourism from cheaper loonie would help the increase in Canadian GDP. The latest press release from the Bank proved that their prediction eight weeks ago was too optimistic.
Most recent publication
The Bank said that they lowered the forecasting due to slow growth in the US economy recovery. The unemployment rate in the US is low but the sluggish business investment is not making enough momentum for the economy. The hope to gain benefit from the US seems to vague now. Canada is not getting enough profit from its neighbour.
China’s slow recovery is another problem for Canada. China is a big importer of oil and commodities. Any disruption in China would drag the oil and commodity prices lower. China’s economy is expanding but with slower speed. It seems that people need to adapt with lower potential growth and also lower interest rates than it ever used to be.
High level of household debt in Canada looks terrible. The debt-income ratio hits 168%. It means that they owe $1.68 for every dollar of disposable income. Increasing the interest target would surely stroke Canadian’s ability to pay its debts.
Hopes in Canadian Economy
International Monetary Fund’s Managing Director, Christine Lagarde, hoped that Canada could lead the global economic recovery. In an event hosted by C.D. Howe Institute, she praised “Prime Minister Justin Trudeau for adopting the IMF’s three-pronged approach of taking monetary, fiscal and structural action to avert the risk of recession”. She also applauded Mr. Trudeau for having a stance in supporting free trade and globalization.
