While the global economy is showing signs of recovery, clearly there are flags that indicate that we are not out of the woods yet. Keeping the bank rate unchanged while positive growth figures are reported, indicates caution on the part of the bank.

The next Bank of Canada rate policy meeting is set for July 19th.

View entire article at CBC News.

Comment (436)

Following a 0.10% decline in February, Canada's GDP was up by 0.30% for March.  Manufacturing and, to a much lesser extent, construction and transportation were the main areas of growth.

Here is the breakdown by sector:

     - Manufacturing + 1.80%
     - Construction + 0.70%
     - Transportation + 0.70% 
     - Wholesale trade + 0.40%
     - Retail trade - 1.00%
     - Finance & insurance - 0.90%
     - Mining and Oil & Gas extraction + 0.10%  

The increases in the manufacturing sector are interesting taking into account the high Canadian dollar...and then maybe make sense when taking into account the cost of energy. As per recent blog post from Jeff Rubin, the added costs of shipping when producing goods overseas, make domestic production more appealing.

What does this mean for interest rates? Well...I think for now, we are in a pocket of stable rate pressure...our higher dollar with more purchasing power is a counterbalance for inflationary pressure from ecomonic growth...the question is...how long until the scales tip? 

Comment (66)

The world as we know it has changed. Many of the rules that we used to base our predictions and forecasts on, now hold as much water as a sinking ship. Fundamentally, previous assumptions were based on the availability of huge oil reserves and also that oil was relatively inexpensive to drill, refine, ship. Earlier days saw high level manipulation from various Governments for the simple sake of profit taking. People accepted the price fluctuations as cyclical changes. So how does our current global oil situation affect mortgage rates?

Interest rate performances have been driven by some basic guidelines…the economy expands…inflation is a concern…so upward pressure on rates…the economy contracts, inflation retreats, and there is downward pressure on rates… But alas now, the influencing factors are so much greater…the world is so much bigger than mere elections and droughts…those were the good ‘ole days.

Jeff Rubin, author of “Why Your World Is About To Get A Whole Lot Smaller,” is an energy specialist, and previously a high level economist with CIBC. His recent blog post on China’s demand for oil and how it could affect the US is an eye opening piece. The following are excerpts:

• Currently, almost 2/3 of the People’s Bank of China $2.85 trillion foreign reserves, are in US dollar assets. In a world of cheap oil, China’s central bank felt compelled to become the largest holder of US Treasury bonds to keep the Yuan from rising and to undermine the competitiveness of Chinese exports in the US marketplace.
• The world is different now.  Not only will triple digit oil prices sever those trans-oceanic trade links through soaring transportation costs but they will throw the U.S. economy back into recession. Contracting economies, particularly those also burdened with huge fiscal deficits, don’t make great trading partners.
• Without access to the huge pool of Chinese savings, the U.S. is no more capable of financing its fiscal deficit than the PIGS (Portugal, Ireland, Greece or Spain) are capable of financing theirs. If China stops funding the Treasury market, Treasury yields will soar, pulling mortgage rates with them.

So, what does this mean for Canada? Will our rates be pulled northward by the influence of the situation in the US? Canada is standing on a little more solid ground than the US, but how much more solid? Our GDP in the last 12 months has shown marginal increases, largely due to our own Mining, and Oil & Natural Gas extraction and processing. Will our natural resources be enough to sustain us through the ever more volatile economic climate?

It seems impossible to answer these questions because the world as we knew it now seems to change on a daily basis. And apart from the numbers that seem to continually dominate discussion, what about non-numerical impacts? Anyone into discussing the global human and environmental outcomes of our new world?

View Jeff Rubin’s blog post here.

Comment (49)

With the Conservatives winning a majority government in Monday’s election, we should not see much of a change in predictions for Canada’s economy.  The business-friendly government policies and a proposed tackling of government inefficiencies should mitigate some of the expected increases in government bond yields over the next few years.   Fixed rates will likely continue to trend higher over the long term but maybe not as quickly as originally thought by most economists.   
 If the Conservatives are able to exercise fiscal restraint through reduced government spending, we  may see the Bank of Canada become less concerned with increasing labour costs, especially in the public sector.  Labour costs are one of the most important inflationary indicators and any reduction in possible upward wage pressures will allow the Bank of Canada to be less aggressive in raising the prime rate.  Once again, the prime rate will trend upwards but possibly less quickly than originally thought by most economists.   
 Canada’s economic recovery is not immune to volatility. The markets are more confident with a business-friendly government and the dollar was somewhat strengthened with the Conservative majority; however, Canada’s economy is tremendously dependent on commodity prices, and the softening of many commodity prices this week has led to a lower dollar and significant stock market losses.

Comment (56)