Photo: James Bombales
This week, Statistics Canada is set to release a report detailing how the Canadian economy performed in January — and economists aren’t optimistic about what it will say.
RBC is predicting 1.9 per cent annualized GDP growth for the first quarter of 2018, while TD is predicting an even smaller 1.4 per cent rise. That’s in comparison to the 4 per cent increase recorded in the first quarter of 2017.
But the forecasted rise for January is expected to be a particularly discouraging number — 0.1 per cent.
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The reason for the tiny increase? Slumping manufacturing sales and — you guessed it — a serious drop January home sales.
After boosting Canada’s GDP significantly in 2017, the housing market has settled into a correction, as it adjusts to the effects of a foreign buyer tax in the GTA, a new mortgage stress test, and an interest rate hike. National home sales plunged 14.5 per cent in January.
“Don’t look to the housing market to carry the team,” writes BMO senior economist Sal Guatieri, in a note about what to expect for the Canadian economy in 2018. “It still needs to work off the speculative fervour that gripped much of Southern Ontario a year ago.”
Both home sales and GDP growth are expected to climb later in the year, once the market has adjusted to the many policy changes.
That means that, while there won’t be a huge rebound in GDP growth next month, things will be looking a bit less dramatic.
“Facing higher interest rates and tougher mortgage rules, Canada’s housing market will more reflect the economy’s performance than lead it this year,” writes Guatieri.
One things seem sure, however, and that’s that the Bank of Canada won’t be hiking the overnight rate any time soon. The rate — which affects mortgage rates — was hiked to 1.25 per cent in January.
“Very marginal GDP growth [in Statistics Canada’s report] would reaffirm our point that even with some reduction in trade uncertainties, the Bank of Canada will be in no rush to raise interest rates again,” writes CIBC senior economist Andrew Grantham, in a recent note.