No further interest rate hikes in sight

At the moment, it appears that the Canadian economy will end this year as happy as Goldilocks was when she found a pot of porridge which was not too hot and not too cold. After a 4.5% jump in the second quarter of this year, Canada’s GDP was flat in July and dropped by 0.1% in August. Over the whole of 2017, the country’s GDP will most likely grow by more than 3%, the first time since 2011 at such a rate.

The Bank of Canada expects that, in 2018 and 2019, GDP growth will decelerate to an annualized rate of 2.1% and 1.5% respectively. If that happens, job creation could also decelerate from the impressive 308,000 jobs created over the past 12 months (35,300 jobs in October). Many people are already saying that the Canadian employers are getting over their heads with the robust jobs creation given the current slow-down of economic growth. All this would keep the Bank of Canada from raising the interest rate further in the near future. 

But this may run contrary to the global decline in central bank stimulus, which, according to the Financial Post, economists expect to start sometime in mid-to-late 2018. Global pullback of financial stimulus will likely drive down prices of stocks and bonds which have been supported by ample liquidity for almost a decade now. If interest rates rise globally, the Bank of Canada will be pressed to follow suit.

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