Economy faces “complex and lengthy adjustment”
The Bank of Canada announced on Wednesday that it plans to keep its trendsetting interest rate on hold as the economy is still facing a “complex and lengthy adjustment”.
Though the Canadian economy has begun to recover from the recession, boasting a 2.3 percent growth rate in the first half of 2015 there are still many concerns that growth could falter again due to the collapse in global oil prices. This collapse has greatly affected Canada’s resource dependent provinces, resulting in mass layoffs.
In their statement announcing their decision, policy makers noted that “In Canada, the dynamics of growth have been broadly in line” with the central bank’s outlook from October.
“The economy continues to undergo a complex and lengthy adjustment to the decline in Canada’s terms of trade” said the bank.
“Business investment continues to be weighted down by cuts in resource-sector spending.” Bank governor Stephen Poloz and his policy council also noted that “the labour market has been resilient at the national level, although with significant job losses in the resource-producing regions.”
There was no mention of the evolution of China’s economy in the statement, though the bank’s October rate statement addressed the “uncertainty” surrounding the transition of the world’s second largest economy to a “slower growth path.” This move has placed “downward pressure on prices for oil and other commodities.”
The last quarterly Monetary Policy Report (MPR), which was released in October, forecasts that Canada’s economy should grow 1.1 percent this year, followed by 2 percent in 2016 and 2.5 percent in 2017. The bank is also predicting that the GDP should grow 2.5 percent during the third quarter of this year, and 1.5 percent in the final quarter.
This growth coincides with data recently released by Statistics Canada, which stated that the Canadian economy grew by 2.3 percent between July and September after two consecutive quarterly declines. The first and second quarters of this year saw the GDP decline by 0.7 percent and 0.3 percent respectively.
The rate of inflation has remained near the bottom of its target range, hovering between 1 percent and 3 percent “owing to declines in consumer energy prices.”
Though policymakers still expect “vulnerabilities” in the housing sector due to record high housing prices in hot markets (such as Vancouver and Toronto) that continue to rise, they say that the “overall risks for financial stability are evolving as expected.”
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