Economic growth in Q3 increasingly likely to be "barely positive", BMO says
Canadian GDP has been lagging behind population growth recently, a trend that could spell trouble for the economy later on, according to Robert Kavcic of BMO Economics.
This was highlighted on the back of Canada’s essentially flat GDP reading in July, coupled with a mere +0.1% initial read on August that leaves growth for Q3 “barely in positive territory,” Kavcic said.
“The struggle is starting to look real in the Canadian economy, and the headwinds might only be getting stiffer,” Kavcic said in a new analysis. “Over the past six months, real GDP is effectively unchanged, which starts to look pretty rough when considering that the population is exploding at a 3% per-year run rate.”
And recent bond market developments are complicating matters, “pushing borrowing rates even higher.”
“The typical 12-to-18 months lags in monetary policy suggest that the most aggressive phase of the tightening cycle (last summer) is about to fully bite,” Kavcic said. “As such, we continue to forecast very little real growth between now and next spring.”
The Canadian population clocked in at 39,566,248 on January 1 this year, with more than 1 million new arrivals registered over the course of 2022, according to Statistics Canada.https://t.co/XgbSgeR7Fd#mortgage #mortgagenews #housingmarket #immigration
— Canadian Mortgage Professional Magazine (@CMPmagazine) March 23, 2023
Feds to maintain current course on housing policy
Immigration Minister Marc Miller said that the federal government is standing by its current population policy, which is targeting the entry of up to 500,000 new arrivals annually by 2025.
“I don’t see a world in which (changing the target) happens,” Miller said in August.
At the same time, Miller stressed that the Liberal administration will be closely looking at how this influx will affect the wider housing market.
“You’ll find a wide divergence of views of what that impact is, of immigration on housing,” he said. “Volume is volume, and it does have an impact. There’s no denying that. But the specific role that immigration plays in certain areas is something we have to kind of break down a little more.”
Even removing these potential additions, in percentage terms, current annual gains of around 3% matches the largest yearly increase since the 1950s post-war boom, BMO said.
“It’s very hard to bring down an economy in the aggregate when the size of the population is growing this quickly,” Kavcic said.
