National Bank of Canada Eco. & Strat. Team
National Bank of Canada
Highlights
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Adjustments to China’s economic rebalancing and the oil shock are proving more challenging than first thought, and as a result global growth remains soft. With downside risks lurking and GDP growth nearing stall speed despite the extension of expansionary fiscal and monetary policies, the probability of recession has arguably increased. We have lowered our forecast for global growth this year by one tick to 3.1%.
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The US economy just posted its worst two-quarter sequence since 2013. The meagre 1% annualized growth on average for 15Q4-16Q1 supports the Fed’s cautious approach to monetary policy. While trade will continue to act as a drag on the economy courtesy of earlier USD appreciation, domestic demand should again contribute to growth thanks largely to consumers, although not to the same extent as last year. Indeed, employment creation is set to moderate in synch with plunging corporate profits, and the benefits of low pump prices will also fade for consumers. We have lowered by one tick our forecast for 2016 US GDP growth to 1.9% (also 1.9% Q4/Q4). That’s the lower end of the range of the FOMC’s forecast. We are accordingly pushing to Q4 the timing for a Fed rate hike.
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While the Canadian economy seems to have had a nice lift in Q1 due to exports, it is not out of the woods just yet. A temporary giveback from trade and continued weakness in domestic demand will limit Q2 growth. Further ahead, an expected moderation in employment creation should have indebted households exert restraint with regards to spending on consumption goods and housing, the latter’s overall affordability currently at its worst in years. That, coupled with continuing declines in business investment should offset the benefits of upcoming fiscal stimulus. All in all, we remain comfortable with our forecasts of just 1.3% for Canada’s GDP growth this year.
This presentation may contain certain forward-looking statements about the 2009 Economic and Financial Outlook. Such statements are subject to risk and uncertainties. Actual results may differ materially due to a variety of factors, including legislative or regulatory developments, competition, technological change and economic conditions in Canada, North America or internationally. These and other factors should be considered carefully and readers should not rely unduly on National Bank of Canada’s forward-looking statements. This presentation may not be reproduced in whole or in part, or further distributed or published or referred to in any manner whatsoever, nor may the information, opinions or conclusions contained in it be referred to without in each case the prior express consent of National Bank.
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