Rear-view rate hikes concerning with economic fogginess ahead


As the Bank of Canada raised its target interest rate a 1/4 point this week, there is disagreement in how the Canadian economy will fare in 2018.

While one or two more rate hikes are expected in 2018, there are also concerns on the horizon for the Canadian economy.

As we hear from Farm Credit Canada economist Craig Klemmer, there are two sides to the issue.

Some of the rear-view mirror indicators were the strong 2nd quarter at GDP 4.5% and overall GDP of 3% for 2017, which was the highest of the G7 countries.

There were also strong fall job numbers, which also has a positive impact on consumer demand. This has been one of the pushes behind the meat protein markets in 2017as described by Anne Wasko in this week’s Beef Market Update.

Klemmer points out that one of the concerns is Canadians’ increase in household debt.  Household debt in Canada is 171% of disposable income. According to a recent OECD report, Canada’s household debt-to-GDP (gross domestic product) ratio had ballooned to 101 percent, which is significantly higher than any other nation. In comparison, Germany and France had a ratio below 60 percent.

Additionally, the NAFTA negotiations are a cloud hanging over Canada, Mexico and the United States. It is almost impossible to read a economic forecast without NAFTA being mentioned (including this one). In November, Canadian manufacturing sales set a record with the motor vehicle assembly group climbed 14.2 per cent, while the motor vehicle parts industry added 11.3 per cent — in tune with the very strong November job numbers where Canadians added the most jobs in one month since February 2012.

Hear Shaun’s discussion with Farm Credit Canada’s principle economist Craig Klemmer discuss the state of the Canadian economy and what may be on the horizon.  

The Canadian dollar has long been thought of as a petro currency; Klemmer and FCC are forecasting a $55 oil price which will assist in a $0.80 Canadian dollar.

With such a mixed bag of indicators it does truly seem like Canadians right now are tapping the brake pedal on getting too excited about what lies ahead for the Canadian economy. There are ample comparisons being made to the United States economy and how the Trump administration is attempting to spur significant future growth with a substantial corporate tax cut.

As I mentioned previously no matter which economic data set you look at, the most obvious risk to the Canadian economy in 2018 is trade unrest.

Opportunity lies in the Trans-Pacific Partnership, but there is risk in a broken NAFTA.


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