10/24/2018
e bank left the rate unchanged in September and senior deputy governor Carolyn Wilkins later said the unknown consequences of the continental trade talks — as well as the tit-for-tat tariff dispute — were front and centre in the decision.
Following the USMCA agreement, the bank now expects lingering trade tensions — such as U.S. metals tariffs and Canada's countermeasures — to lower business investment by just 0.7 per cent by the end of 2020, compared with the 1.4 per cent reduction it had predicted in July. Exports are now expected to take a negative hit of just 0.3 per cent compared to the previous prediction of a 0.7 per cent reduction.
The bank pointed to data that indicates the tariff quarrel has led to reductions in steel exports and imports, but have yet to show a notable impact on aluminum shipments.
Bank anticipates exporters to delay investments
The projections were laid out in the latest edition of bank's quarterly monetary policy report, which was also released Wednesday.
The report predicted business investment — outside the oil and gas sector — will expand due to solid domestic and foreign demand.
It noted, however, Canada is still grappling with competitiveness challenges linked to major U.S. tax and regulatory changes as well as ongoing uncertainties around pipeline approval. The bank anticipates these factors will encourage some exporters to delay their investments or to make them outside Canada.
Exports are expected to continue growing at a moderate clip, the bank said, but they will face limitations from several factors — including transportation capacity constraints, global trade uncertainty and stiff competition, particularly from the U.S.
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In a batch of updated economic forecasts, the bank predicted Canada's real gross domestic product to expand 2.1 per cent in 2019, down from its July call of 2.2 per cent, and by 1.9 per cent in 2020. Its growth projection for this year has been increased slightly to 2.1 per cent, up from its previous prediction of two per cent.
Inflation, which reached 2.7 per cent in the third quarter of 2018, is expected to slide back close to two per cent by next spring as temporary effects from higher air fares, pricier gasoline and minimum wage hikes in some provinces fade away. The bank noted that core inflation readings, which omit more volatile items like pump prices, have stayed close to two per cent.
The report also noted that the economic activity generated by the recent legalization of recreational cannabis will likely have just a small impact on monetary policy decisions.
