Canada's economic strength and the attendant inflation rates are likely to persist for the foreseeable future
The Bank of Canada will likely continue its large interest rate hikes despite softer housing markets, according to RBC Economics.
This is because higher commodity prices and the recovery of the travel and hospitality industry will continue to bolster economic activity, especially in the near term. Taking these trends into account, RBC said that it is tracking a 4.5% annualized increase in GDP for the second quarter.
Still, “we continue to expect economic growth to slow substantially over the second half of 2022,” impelled by lower overall consumer purchasing power stemming from inflation and higher interest rates.
“Housing markets have pulled back dramatically with home resales down 27% between March and June,” RBC said. “National benchmark home prices have started to decline (-3% April through June) and more declines are expected as central banks continue to raise interest rates.”
Read more: 2022 mortgage market: What’s in store for the rest of the year?
Fortunately, the jobs sector is picking up some of the slack.
“At 4.9%, the unemployment rate in June and July was at record lows (dating at least back to 1976),” RBC said. “An excess of demand in labour markets is keeping unemployment very low for now – job openings are running more than 60% above pre-pandemic levels – and pushing wages higher.”
