Wars come and go, powerful countries battle incredible uncertainties and developing countries start to ramp up economic activity through innovation and education. The world, as we know it is changing, but what effect does this (or will this) have on Canada?
In July, the Bank of Canada decided that it would keep the policy rate at the incredibly low rate of 1% until conditions improve. They also adjusted the growth rate for this year to 1.8% where it was previously 1.5% before a strong first quarter.
The bank saw some hope for Canada’s economic conditions for later this year: here are some of this year’s outlooks.
If inflation does occur in Canada, there could be stronger private-demand in the United States. If high prices for house also occurs than household deleveraging could end soon. This would give businesses more confidence investing and hiring if there was a growth in consumption and residential investment. Through the US trading channels and commodity pricing, the Canadian economy will likely benefit.
If the European crisis isn’t contained and sorted out there could be a large downside for the Canadian economy. If European countries were to lose access to debt markets, confidence would be shaken, which would affect US credit spreads and ultimately prices would fall. This would be bad for Canadian exports and for domestic economic activity
If China’s economy slows down Canada could see weaker export sales, lower prices for commodities and terms of trade would take a big hit.
The high level of household debt and imbalance in a few areas of the housing market are still a source of domestic risk. Even though credit growth has slowed, the level of debt is still high. If borrowing rates continue to be this low there could be renewed momentum in the housing market which would produce economic activity and inflation, but it was also make the existing imbalances worse and increase the likelihood of a more sever correction later on that could have incredibly negative effects on the Canadian economy.
This sounds like a lot of risk for the Canadian government to not be taking more actions on… I wonder what they are going to do about this? It’s clear that there are a few major pain points for Canada, all the public can really do is watch, don’t go into too much debt and wait.