Gloomy outlook for Canadian economy sees loonie pushed to 73 cents
Bank of America, one of the U.S.’s biggest banks, says the Bank of Canada may have to cut its key lending rate again later this year.
Bank of America says Canada’s economy will underperform the U.S. this year, hampered by low oil prices and worries over manufacturing competitiveness.
- Oil shock will hurt but will be short lived, Poloz says
- Time to stop waiting for America’s economic recovery: DonPittis
Already Canada is seeing investors move away from its bond and equity markets as they seek out a surer return in the U.S., the bank says.
Author Emanuella Enenajor says Canadian central bank governor Stephen Poloz is “handcuffed by the Fed,” which is expected to raise rates later this year.
U.S., Canadian economies on different paths
Bank of America says Bank of Canada governor Stephen Poloz will be ‘handcuffed by the Fed’ into raising rates. (Canadian Press)
“Even as the Fed begins a gradual rate hike cycle this year, we think the Bank of Canada will remain accommodative, and will likely ease by another 25 basis points to 0.5 per cent if growth disappoints, as we expect,” she wrote in a report released today.
She points to a decoupling of the Canadian and U.S. economies, so that growth in the U.S., which is expected to be robust, will not have the stimulating effect on the Canadian economy it did in the early 2000s.
A 1 per cent increase in US domestic demand lifts Canadian GDP by about 0.25 per cent under current conditions. Ten years ago, the impact of that same one per cent rise would have been twice as much of an impact on Canada’s economy, the report said.
Poloz has acknowledged weakness in Canada’s economy in the first quarter, but expects a rebound later in the year as exports grow because of U.S. demand.
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