e c o n o m i c o ut lo o k q 4 canada—mid-cycle adjustment on the horizon After a relatively flat reading for real GDP growth in Q4 2019, we are expecting the Canadian economy to rebound later into 2020. We are forecasting Canadian real GDP growth of 1.4% and 1.9% for 2020 and 2021, respectively. Going into the new year, Canadian economic data was fairly positive. The labour market boasted positive numbers adding 27,300 and 34,500 jobs in December and January, respectively. Despite pipeline curtailment, exports were up by 1.9% in December largely driven by crude-by-rail. On January 15, Trump signed a “Phase-One” trade deal with China and noted a “Phase-Two” provision will be drafted in the coming months. After leaving rates unchanged throughout Q4, the Bank of Canada is beginning to sound more dovish. The BoC is leaving the door open for another rate cut this year, which we believe will take place in Q2. While the Canadian economy is fairly robust, another mid-cycle adjustment may be appropriate. The main reason for a rate cut would be to drive foreign investment. While the price of a loonie to a dollar may seem cheap, Canadian currency appreciation against foreign exporters to the US market caused downward pressure on Canada’s capital and current accounts. In an ultra-low interest rate environment, the currency is the BoC’s main channel of influence. With exports already on the rebound, driven by the easing of global trade tensions and crude-by-rail, we believe foreign investment can be further facilitated with a rate cut in Q2. While the decision relies on economic data, we are forecasting indicators to lean towards easing policy. For example, despite the recent strong
employment figures, we believe that employment growth has been a little stronger than it should have been given other economic data. As such, we expect a slight uptick in the unemployment rate, which would see investors pricing in a greater probability of a rate cut.
S ource : CIBC W orld M arkets
British Columbia - Leading the Canadian Economy Among a sluggish backdrop, British Columbia is emerging as a bright spot in the Canadian economy. We believe the BC economy, while slightly overweight in trade and manufacturing, has upheld resilience through increased diversification. We expect BC to lead Canada in 2020 and 2021 with 2.0% and 2.4% real GDP, respectively. We would like to reiterate, from our last publication, the spillover from a slowing national and global economy continues to weigh on BC’s forestry sector, manufacturing sector and consumer spending. The unemployment rate has been trending higher since July 2019 after an
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