FXStreet (Guatemala) – Analysts at Rabobank explained that there is currently much debate as to whether Canada has entered into recession.
Key Quotes:
“Friday’s release of May GDP data will shine more light on whether the Canadian economy will suffer a second quarter of negative growth in Q2. Whether or not this means that Canada will have suffered technical recession depends on which definition is used. The markets favour the quick and easy ‘two negative quarters’ definition but this is not accepted by all academics particularly in North America. In many respects the debate is pedantic since it is clear that the Canadian economy has been very weak since the start of the year. “
The market is expecting May GDP to be flat m/m but the first four months of the year all brought negative monthly data. The weakness of the oil price has resulted in a massive plunge in business investment. The BoC now expects investment in the oil sector to plummet almost 40% this year. Also on the back of soft oil prices Canada is experiencing a widening output gap and a deteriorating current account position. As well as cutting interest rates for the second time this year, earlier this month the BoC slashed its growth forecasts. “
“That said, following an contraction in both Q1 and Q2 the Bank expects growth to return in Q3 leading to a full year expansion of 1.1% (down from a 2% prediction made just a few months ago). While the energy sector is clearly reeling, higher levels of US economic activity in H2 are expected to lend support to the Canadian economy. As it stands the labour market has been showing signs of resilience on the back of the better performance of non-energy related industries and the housing market (outside of the oil producing areas) has been performing well. “
“While money market rates suggest the market has not ruled out the possibility that the BoC could cut rates again this year, expectations for a H2 pick-up along with concerns that lower rates could exacerbate very heady levels of household debt will likely temper the Bank’s enthusiasm for further easing.”
(Market News Provided by FXstreet)