RSS

Bank of Canada's Economic Outlook: Challenges and Uncertainties
The Bank of Canada (BoC) has decided to maintain its current interest rates in its most recent meeting, signaling a continuation of its economic strategy. In this article, we explore the implications of this decision for real estate and the broader economy, shedding light on critical economic challenges.

Introduction

The BoC's decision to keep interest rates unchanged for the second consecutive meeting is aimed at instilling confidence and preventing a resurgence of speculative behavior in the real estate market. However, it's clear from the BoC's language and the deteriorating economic conditions that further rate increases in this economic cycle are unlikely.

Economic Challenges and the Search for Relief

The Bank of Canada (BoC) opted to maintain its current interest rates during its latest meeting, marking the second consecutive meeting where rates remained unchanged. The decision to keep rates steady is aimed at reassuring the Canadian public about the potential for future rate hikes, with the goal of preventing a resurgence of speculative behavior in the real estate market. However, it is evident from the language used by the BoC and the worsening economic conditions that any further rate increases in this economic cycle are unlikely.

While it appears that we have reached the peak in terms of interest rates, the pressing question now is when we can expect to witness actual relief from the current economic challenges. The Bank of Canada continues to emphasize its commitment to a "higher for longer" economic environment.

Several key takeaways emerge from the BoC's latest statement. Firstly, the Bank acknowledges the mounting pressure that could potentially lead to a recession. It recognizes the increasing evidence that previous interest rate hikes have had a dampening effect on economic activity and have contributed to easing price pressures.

During the press conference, there was a notable remark about the narrow path to achieving a soft landing in the economy. The latest projections from the Bank suggest that this path has become even narrower, which can be seen as a cautious acknowledgment of the possibility of an impending recession. This sentiment aligns with the broader economic trends in Canada.

The evidence supporting concerns of a looming recession is substantial. One noteworthy example is the persistent negative trend in GDP when adjusted for Canada's rapidly growing population. In other words, in per capita terms, the country is already experiencing a recession. This data underscores the challenges Canada faces in maintaining economic stability in the face of adverse conditions. Secondly, it's crucial to closely monitor the decline in retail sales, as it serves as a pivotal macroeconomic indicator. When consumers start to pull back on their spending, the broader economy typically follows suit.

In the latest data, we observe a notable 0.6% decline in retail sales when adjusted for inflation, marking the lowest point reached in the entire year. The most significant areas of weakness are evident in the cyclical sectors, including automobiles, home furnishings, clothing, sporting goods, and hobby stores, all of which experienced declines last month. This trend aligns with what one would anticipate as the economy undergoes a cooling phase.

When we examine sales on a per capita basis, they still register negative year-on-year figures, even before factoring in the effects of inflation. This particular aspect of the data further underscores the possibility of a looming recession. It implies that consumer spending is not only retreating but also losing its real purchasing power, potentially indicating a recessionary environment. Consumers are now encountering a substantial obstacle, a sentiment that is notably reflected in the most recent consumer confidence indices. To underscore the gravity of the situation, it's worth noting that in the two-decade existence of the Conference Board's index, it has ventured below the 60-point threshold on only five occasions. This threshold is an important marker, as it typically indicates a pronounced shift in consumer sentiment.

Historically, this index dipped below 60 during the global Financial Crisis, experienced a brief stint in April 2020 amid the initial shockwaves of the pandemic, and now, in September and October of 2023, it has again fallen below this critical threshold. However, what makes this recent development especially noteworthy is the fact that, in its entire history, this index had never consecutively registered readings below 60 until these past two months. This prolonged dip signifies a prolonged period of wavering consumer confidence, which can have far-reaching implications for the overall economic landscape. The sentiment of gloom is not exclusive to consumers; it extends to the business sector as well. The Conference Board of Canada's Index of Business Confidence has experienced a significant decline for the ninth consecutive quarter. Presently, it has descended to levels that have only been witnessed twice in the last two decades, notably during the Financial Crisis and the onset of the COVID pandemic.

This persistent and deepening decline in business confidence is an alarming trend, reflecting the prevailing uncertainty and apprehension within the corporate landscape. An especially telling statistic is that nearly 60% of companies now anticipate deteriorating economic conditions over the next six months. This figure represents a substantial increase from the 39.5% recorded in July, highlighting the growing pessimism within the business community. This shift in outlook suggests a considerable shift in the perception of future economic prospects, which could have significant repercussions on business decisions and overall economic performance. Indicators signaling future sales have now plummeted to levels not witnessed in the past two decades, with the exception of periods marked by recessions. Additionally, a growing proportion of companies are identifying sales and demand-related issues as significant concerns in their operations.

When both consumers and businesses experience a decline in confidence, it invariably leads to reduced consumer spending and decreased investment in business activities. Recognizing this, the Bank of Canada (BoC) has rightfully adopted a cautious stance against tightening monetary policy further, given the evident deterioration in the overall macroeconomic environment.

Some readers may understandably point to the relatively robust labor market as a counterargument. However, it's crucial to bear in mind that job market conditions tend to be among the last factors to exhibit a downturn in response to economic challenges. This observation holds especially true following several years marked by an almost desperate demand for workers, during which businesses clung to their workforce assets until they had no other viable option. Yet, it is increasingly apparent that the time for significant changes in the labor market is approaching.


 
 
Read

I have sold a property at 25 Mortimer CRES in Ajax

We have sold a property at 25 Mortimer CRES in Ajax. See details here

Welcome to 25 Mortimer Cres and discover family-friendly charm in this much sought-after Riverside neighbourhood in Ajax. This stunning home is a true oasis and offers a lifestyle perfect for both relaxation and entertainment. The recently renovated interior boasts fresh paint and exquisite trim work, giving it a modern and elegant feel throughout. Upstairs are 4 generous sized rooms plus 2 additional rooms and a 4 pc bath in the basement. The walkout basement offers plenty of natural light from large windows and features a full kitchen, dining area, living room with fireplace and a new secondary laundry hookup. With one of the largest lots in the neighbourhood, enjoy the large inground pool along with the sprawling lawn, ideal for creating lasting memories with loved ones. It is conveniently located close to highly desirable schools, amenities and highways.

Read

Open House. Open House on Saturday, October 28, 2023 12:00 PM - 2:00 PM

Please visit our Open House at 25 Mortimer CRES in Ajax. See details here

Open House on Saturday, October 28, 2023 12:00 PM - 2:00 PM

Welcome to 25 Mortimer Cres and discover family-friendly charm in this much sought-after Riverside neighbourhood in Ajax. This stunning home is a true oasis and offers a lifestyle perfect for both relaxation and entertainment. The recently renovated interior boasts fresh paint and exquisite trim work, giving it a modern and elegant feel throughout. Upstairs are 4 generous sized rooms plus 2 additional rooms and a 4 pc bath in the basement. The walkout basement offers plenty of natural light from large windows and features a full kitchen, dining area, living room with fireplace and a new secondary laundry hookup. With one of the largest lots in the neighbourhood, enjoy the large inground pool along with the sprawling lawn, ideal for creating lasting memories with loved ones. It is conveniently located close to highly desirable schools, amenities and highways.

Read

Canada's Inflation Slows Down in September: What It Means for Bank of Canada's Interest Rates

Introduction

In a surprising turn of events, Canada witnessed a slowdown in its annual inflation rate in September, leading to expectations that the Bank of Canada (BoC) will not raise interest rates on October 25. This article dives into the details of this development and its potential implications.

Understanding the Inflation Data

The most recent Consumer Price Index (CPI) data from Statistics Canada reveals that inflation increased by 3.8% year over year in September, a decrease from the 4% recorded in August. This deceleration in inflation was widespread and primarily attributed to reduced prices in specific categories.

Groceries: A Key Contributor

Grocery prices played a significant role in the inflation slowdown. In September, they saw a year-over-year increase of 5.8%, down from a 6.9% rise in August. This was mainly driven by a slowdown in the cost of items like meat, dairy products, coffee, and tea.

Durable Goods and Travel-Related Services

Durable goods also experienced a more modest annual increase of 0.4% in September, compared to the 1.4% surge in August. Additionally, the price of air transportation plummeted by 21.1% in September, contributing to the overall slowdown.

Gasoline Prices on the Rise

Offsetting the deceleration in the overall CPI was an increase in gasoline prices, which rose by 7.5% annually due to base-year effects. However, on a monthly basis, gas prices fell by 1.3%, playing a significant role in the 0.1% month-over-month decline in the CPI.

Core Inflation Measures: CPI Median and CPI Trim

The CPI median and CPI trim, the Bank of Canada's preferred measures of core inflation, also decelerated to 3.8% and 3.7%, respectively, on an annual basis in September. On a three-month annualized basis, CPI median fell to 3.5%, while CPI trim eased to 3.8%.

What This Means for the BoC's Interest Rates

Despite inflation remaining notably above the Bank of Canada's 2% target, September's inflation figure fell short of economists' expectations. Alongside signs of a slowing economy, such as a lackluster Business Outlook Survey and stagnant GDP, economists anticipate that the Bank will, for the second consecutive month, choose to keep interest rates steady at 5%.

Expert Opinions

Benjamin Reitzes, Managing Director at BMO, expressed that "inflation is currently uncomfortably high, but the trend favors the Bank of Canada." He emphasized that, given the lagging nature of inflation indicators and the weakening economy, there appears to be no immediate need for further rate hikes.

Marc Ercolao, an Economist at TD, concurred with the expectation of the Bank of Canada maintaining its current rates, stating that September's data marks "another small step toward addressing the remaining inflation concerns."

However, Randall Bartlett, Senior Director of Canadian Economics at Desjardins, cautioned that the Bank of Canada's announcement might include a "hawkish tone" and a "threat to raise interest rates again if data does not cooperate." This stance would align with Bank of Canada Governor Tiff Macklem's remarks in September.

Macklem pondered, "The focal point for the governing council will be whether to retain the policy rate at 5.00% and allow past interest rate increases to have their intended impact on the economy and alleviate price pressures. Alternatively, does the weight of evidence from various economic indicators suggest that further action is required to restore price stability?"

Conclusion

Canada's recent inflation figures have surprised economists, and all eyes are on the Bank of Canada's upcoming decision regarding interest rates. While inflation remains high, the signs of a weakening economy suggest that the BoC may opt to keep rates steady for the second consecutive month. However, there's a hint of caution in the air, as the central bank may adopt a more hawkish tone, keeping a close watch on inflation and the broader economic indicators. Stay tuned for the October 25 announcement to see how the BoC responds to these shifting economic dynamics.

Read

September 2023 Real Estate Market Stats - Navigating the Greater Toronto Area Real Estate Market in a Shifting Landscape

Navigating the Greater Toronto Area Real Estate Market in a Shifting Landscape

When it comes to the real estate market in the Greater Toronto Area (GTA), there's a lot to consider. The impact of high borrowing costs, rising inflation, uncertainty regarding the Bank of Canada's future decisions, and slower economic growth have all played a role in shaping the GTA's real estate landscape. In this blog post, we'll explore the current state of the GTA real estate market, what the experts are saying, and how you can navigate this shifting environment.

The GTA's Real Estate Market in September 2023

In September 2023, the GTA real estate market faced some challenges, with home sales experiencing a 7.1% decline compared to September 2022. This dip was particularly noticeable in the sales of ground-oriented properties, including semi-detached houses and townhouses. Additionally, on a month-over-month seasonally-adjusted basis, sales saw a slight decrease.

Rising Listings and Prices

Despite the drop in sales, there was good news for potential buyers. New listings were up significantly compared to September 2022, which had seen an exceptionally low number of listings. Furthermore, the number of listings continued to trend upward on a month-over-month seasonally adjusted basis.

For those who are concerned about affordability, the MLS® Home Price Index (HPI) Composite benchmark showed a year-over-year increase of 2.4%. The average selling price also saw a three percent rise over the same period. On a month-over-month seasonally-adjusted basis, both the average selling price and the MLS® HPI Composite benchmark showed a minor decrease of less than one percent.

Short and Medium-Term Outlook

TRREB President Paul Baron provided insights into the short and medium-term outlook for the GTA housing market. While borrowing costs are expected to remain high until mid-2024, there's a consensus that they will gradually decrease afterward. This suggests that the second half of the following year could see a notable uptick in demand for ownership housing. Lower interest rates and a growing population are expected to drive this increase in buyers.

Challenges and Calls for Change

One noteworthy challenge is the affordability for first-time buyers. TRREB's annual consumer polling indicates that approximately half of prospective homebuyers in Toronto are first-time buyers each year. However, the average price of a condo apartment in Toronto now exceeds $700,000. Despite this, the first-time buyer exemption threshold for the City's upfront land transfer tax has remained at $400,000 for fifteen years.

TRREB CEO John DiMichele commended the Toronto City Council for requesting a report on a more appropriate exemption level. He stressed the importance of aligning housing and taxation policies to address the ongoing housing crisis.

Conclusion: Navigating the GTA Real Estate Market

As the GTA's real estate market faces various challenges, it's essential to stay informed and be aware of both short-term and long-term trends. While high borrowing costs and economic uncertainties pose challenges, there are opportunities for buyers, especially in the second half of 2024 when interest rates are expected to trend lower.

Moreover, advocacy for policy changes, like updating exemption thresholds to make housing more accessible, is crucial to ensuring a fair and balanced real estate market in the GTA. With all these factors in mind, prospective buyers and sellers should stay informed and consult with experts to make well-informed decisions in this ever-evolving market.

Read

Open House. Open House on Saturday, October 14, 2023 12:00 PM - 2:00 PM

Please visit our Open House at 25 Mortimer CRES in Ajax. See details here

Open House on Saturday, October 14, 2023 12:00 PM - 2:00 PM

Welcome to 25 Mortimer Cres and discover family-friendly charm in this much sought-after Riverside neighbourhood in Ajax. This stunning home is a true oasis and offers a lifestyle perfect for both relaxation and entertainment. The recently renovated interior boasts fresh paint and exquisite trim work, giving it a modern and elegant feel throughout. Upstairs are 4 generous sized rooms plus 2 additional rooms and a 4 pc bath in the basement. The walkout basement offers plenty of natural light from large windows and features a full kitchen, dining area, living room with fireplace and a new secondary laundry hookup. With one of the largest lots in the neighbourhood, enjoy the large inground pool along with the sprawling lawn, ideal for creating lasting memories with loved ones. It is conveniently located close to highly desirable schools, amenities and highways.

Read

Open House. Open House on Sunday, October 15, 2023 12:00 PM - 2:00 PM

Please visit our Open House at 25 Mortimer CRES in Ajax. See details here

Open House on Sunday, October 15, 2023 12:00 PM - 2:00 PM

Welcome to 25 Mortimer Cres and discover family-friendly charm in this much sought-after Riverside neighbourhood in Ajax. This stunning home is a true oasis and offers a lifestyle perfect for both relaxation and entertainment. The recently renovated interior boasts fresh paint and exquisite trim work, giving it a modern and elegant feel throughout. Upstairs are 4 generous sized rooms plus 2 additional rooms and a 4 pc bath in the basement. The walkout basement offers plenty of natural light from large windows and features a full kitchen, dining area, living room with fireplace and a new secondary laundry hookup. With one of the largest lots in the neighbourhood, enjoy the large inground pool along with the sprawling lawn, ideal for creating lasting memories with loved ones. It is conveniently located close to highly desirable schools, amenities and highways.

Read

New property listed in Central West, Ajax

We have listed a new property at 25 Mortimer CRES in Ajax. See details here

Welcome to 25 Mortimer Cres and discover family-friendly charm in this much sought-after Riverside neighbourhood in Ajax. This stunning home is a true oasis and offers a lifestyle perfect for both relaxation and entertainment. The recently renovated interior boasts fresh paint and exquisite trim work, giving it a modern and elegant feel throughout. Upstairs are 4 generous sized rooms plus 2 additional rooms and a 4 pc bath in the basement. The walkout basement offers plenty of natural light from large windows and features a full kitchen, dining area, living room with fireplace and a new secondary laundry hookup. With one of the largest lots in the neighbourhood, enjoy the large inground pool along with the sprawling lawn, ideal for creating lasting memories with loved ones. It is conveniently located close to highly desirable schools, amenities and highways.

Read

Opinions regarding the contrasting economic trajectories of the United States and Canada, the impact of the mortgage stress test, and an inequitable policy ensnaring numerous mortgage borrowers.

How Recent GDP Data Could Impact Mortgage Rates

We've just received the latest GDP data for both Canada and the United States, and in this blog post, we'll dive into how these figures might affect mortgage rates in the near term. Additionally, we'll explore the challenges posed by the mortgage stress test in Canada and the pressing issues facing Canadian mortgage borrowers.

Canadian GDP Sees Sluggish Performance

Last week, Statistics Canada confirmed that our Gross Domestic Product (GDP) displayed no growth in July, following a 0.2% decline in June. Moreover, the estimate for August indicated a meager 0.1% expansion in our economy. These statistics prompted adjustments in the bond futures market, leading to reduced expectations of another interest rate hike by the Bank of Canada (BoC) this year. This trend aligns with the market's sensitivity to economic data releases.

The sluggish momentum in our GDP growth underscores the impact of the BoC's previous interest rate hikes, which are now becoming discernible. It also suggests that the savings buffers created during the pandemic, enabling consumers to manage higher costs while maintaining spending, are gradually depleting.

However, it's essential to note that sluggish economic growth alone won't suffice to bring inflation back in line with the BoC's 2% target. The overarching theme is that we have a considerable distance to cover before reaching that objective.

Strong and Steady US GDP Growth

In stark contrast, recent data reveals that the United States achieved a year-over-year GDP growth rate of 2.1% in the second quarter. The US economy is currently operating at a significantly more robust pace compared to Canada, driven by two key factors:

1. Productivity Surge: Productivity in the United States has shown remarkable improvement since the pandemic began, whereas Canadian productivity has steadily declined during the same period. The significance of this measure, particularly over the long term, cannot be overstated.

2. Household Debt Discrepancy: During the 2008 Great Recession, US households substantially reduced their debt levels, while Canadian households continued to accumulate debt, as indicated in the chart. This divergence in household debt-to-GDP ratios suggests that the US consumer may be less sensitive to interest rate hikes, potentially causing the US Federal Reserve to maintain higher policy rates for a more extended period than the BoC. This scenario could have repercussions on Canadian fixed-mortgage rates.

Fixed vs. Variable Mortgage Rates

Fixed mortgage rates in Canada are heavily influenced by Government of Canada (GoC) bond yields, often moving in tandem with their US counterparts. This synchronization may keep Canadian fixed mortgage rates elevated, even amid a weakening domestic economy.

Conversely, variable mortgage rates in Canada are not subject to the same constraints. They adjust in line with the BoC's policy rate, providing a more accurate reflection of domestic economic conditions.

Reevaluating the Mortgage Stress Test

As our economy decelerates and our housing markets cool down, it's time to reconsider some established practices. One such practice under scrutiny is the 2% inflation target. Some argue that this target is arbitrary and that a slightly higher target, around 3%, might be more suitable in the future.

The mortgage stress test is another policy tool under scrutiny given the evolving circumstances. While it made sense to qualify borrowers at rates close to long-term averages when mortgage rates were exceptionally low, the situation has changed. Mortgage rates have climbed above historical averages, and the BoC's policy rate remains in restrictive territory. The question arises: Is it still appropriate to qualify borrowers at rates 2% higher than their already elevated current levels?

While an immediate change to the stress-test rate isn't advocated, policymakers must navigate the housing market's momentum to combat inflation. There's also the issue of excess leverage in certain regional markets that heated up during the pandemic. However, the debate about reducing or altering the stress test will likely intensify, perhaps sooner than anticipated.

An Unjustifiable Policy: Renewal Borrowers' Dilemma

A notable flaw in our banking regulator's mortgage rules is the requirement for renewing borrowers switching to a different lender at renewal. They must be requalified at today's stress-tested rates, unlike borrowers who renew with their existing lender.

Initially designed to prevent excessive competition among lenders for highly leveraged borrowers, this policy inadvertently traps many borrowers with their existing lenders. This often forces them to renew at inflated rates. Despite criticism, the regulator has yet to address this anti-competitive policy and its impact on borrowing costs.

With today's stress-test rates exceeding 8%, more borrowers are unable to access competitive rates. This should increase pressure on our regulator to rectify this issue.

In Conclusion

While the five-year GoC bond yield showed minimal changes recently, a mid-week surge in bond yields led to further increases in fixed mortgage rates. Predicting when fixed rates will stabilize is challenging due to the strong upward momentum in bond yields. Therefore, those seeking a mortgage are advised to secure the best available rate today, as even a seemingly less favorable pre-approval rate could become highly competitive in the near future.

Variable-rate discounts have remained unchanged, and although the consensus suggests the BoC may have completed its rate hikes for 2023, uncertainty persists. The bond futures market's volatility, coupled with forthcoming employment reports from both the US and Canada, could trigger additional rate fluctuations.

Read

Navigating the August 2023 Real Estate Market: Insights and Trends

August 2023 Market Stats

In this article, we'll delve into the August 2023 real estate market statistics and explore the factors that influenced these trends. From increased borrowing expenses to ongoing economic uncertainty and decisions made by the Bank of Canada, we'll dissect the data to gain a better understanding of what's happening in the housing market. Let's start by examining the key highlights.

Home Sales Decline in August 2023

Increased borrowing expenses, ongoing economic uncertainty, decisions made by the Bank of Canada, and limited listing availability led to a decline in home sales in August 2023 when compared to the same month in 2022. During this period, the average selling price remained relatively stable. When considering monthly adjustments for seasonal factors, both sales and the average price experienced slight declines

Greater Toronto Area Statistics

In August 2023, REALTORS® in the Greater Toronto Area recorded 5,294 sales, marking a 5.2 percent decrease from August 2022. However, there was a positive development in new listings, which saw a 16.2 percent year-over-year increase, offering some relief in terms of supply. Nonetheless, when looking at year-to-date listings, there remains a significant decrease compared to the same period in the previous year. On a seasonally adjusted basis, sales showed a marginal one percent month-over-month decline when compared to July 2023, while new listings experienced a slight 1.3 percent increase compared to July.

Stability in Average Selling Prices

"During the summer, we witnessed more balanced market conditions compared to the tighter spring market. Consequently, selling prices remained relatively stable, hovering around last year's levels and showing a slight dip compared to July. The increase in interest rates, which resumed in May after a pause in the winter and early spring, necessitated adjustments from many buyers to meet higher monthly payment requirements. Notably, not all sellers chose to accept prices lower than their expectations, leading to a reduction in the number of sales," explained TRREB Chief Market Analyst Jason Mercer.

In terms of statistics, the MLS® Home Price Index Composite benchmark for August 2023 demonstrated a year-over-year increase of 2.5 percent. Similarly, the average selling price experienced an uptick, albeit a modest one, of less than one percent, reaching $1,082,496 over the same period. On a month-over-month, seasonally adjusted basis, the MLS® HPI Composite benchmark remained largely unchanged, while the average price declined by 1.6 percent.

Impact of Interest Rates on Affordability

"As higher interest rates have unquestionably affected affordability, the anticipation of increased taxes will additionally strain households' financial positions, particularly younger buyers who may have limited savings. As the City of Toronto deliberates raising the municipal land transfer tax (MLTT) rate for properties exceeding $3 million as a source of revenue, it should also contemplate offering support to first-time homebuyers grappling with the challenge of entering the market. Adjusting the tax rebate threshold to align with today's elevated home prices could be a viable solution," suggested TRREB CEO John DiMichele.

Tactics and Trends in Home Listings

On a side note - Over the past month, We’ve observed an increasing number of homes listed for sale at notably aggressive prices. In certain instances, sellers opt to list their homes with artificially low asking prices as a tactic to draw in multiple buyer offers. However, when the offer date arrives and they receive multiple offers, the sellers often reject all of them because none meet their price expectations. Subsequently, these sellers relist their homes at the desired price, resulting in their properties languishing on the market for weeks as buyers are unwilling to meet those price demands.

While some sellers are gradually reducing their asking prices, others are taking their homes off the market temporarily, with plans to relist them in September. Although this is a common approach among real estate agents during the summer months when buyer activity typically slows, it remains intriguing to see how effective this strategy will be this year, given potential shifts in the market beyond the usual seasonal patterns.

The Unique Challenges of 2023

The uniqueness of this year stems from a changing market influenced by today's significantly higher interest rates. Some buyers are hitting the pause button because they find it increasingly challenging to afford a home at the current interest rates, especially when undergoing stress testing for a mortgage at around 8%.

Source: Market Watch

For the latest updates and in-depth analysis of real estate trends, stay tuned to Market Watch.

Get in Touch with Us

As always, we are here to guide and educate all our clients. If you have any questions or need assistance navigating the real estate market, don't hesitate to reach out to us. We're just a text, email, or phone call away!

Read

Canadian Economy Stagnates in Q2 2023: Potential Impact on Interest Rates

The State of the Canadian Economy in Q2 2023

In the latest data released by Statistics Canada (StatCan) this morning, the Canadian economy experienced stagnation during the second quarter of the year.

Key Economic Figures for Q2 2023

StatCan reports that the Canadian economy contracted by an annualized rate of 0.2% in Q2 2023, a figure significantly lower than the Bank of Canada's earlier prediction of 1.5% growth. Additionally, StatCan revised the growth rate for the first quarter, reducing it to an annualized rate of 2.6% from the previously reported 3.1%.

Factors Contributing to Second-Quarter Weakness

A significant contributing factor to this weakness was a 0.2% decline in output in June.

Impact of High Interest Rates and Housing Prices

As expected, given the prevailing high interest rates and housing prices, investment in the housing sector continued to decline in the second quarter, primarily due to reduced new construction activity.

Consumer Spending and Its Trends

Consumer spending showed a modest increase of 0.2%, but this was the smallest uptick since the pandemic lockdowns in Q2 2021. Furthermore, the growth in real household spending slowed to 0.1% in Q2, compared to 1.2% in the first quarter, reflecting the significant impact of inflation and higher borrowing costs.

Other Contributing Factors: Inventory and Exports

The data indicates that the second-quarter weakness can also be attributed to reduced inventory accumulation and a slower pace of growth in exports. Canada's exports of goods and services only increased by 0.1% in Q2, compared to a more substantial 2.5% increase in the first quarter.

Stability in July's GDP and the Rise in Inflation

Preliminary estimates suggest that the GDP for July remained relatively stable. In August, the country's inflation rate ticked higher as mortgage costs continued to rise for the fifth consecutive month, marking the most significant increase on record.

Anticipation for the Bank of Canada's Decision

Many Canadians are eagerly awaiting the Bank of Canada's (BoC) upcoming interest rate decision next week, especially after the BoC raised its key interest rate target by a quarter of a percentage point to 5% in July.

Impact of Higher Interest Rates and RBC's Insights

These latest statistics reveal that the effects of higher interest rates are beginning to have an impact, resulting in a cooling economy with reduced consumer spending – precisely the intended outcome of monetary policy. In response to the latest economic data released this morning, RBC Economics, in their Daily Economic Update, has indicated that these numbers are likely to strengthen the prevailing expectations that the Bank of Canada (BoC) will abstain from implementing another interest rate hike.

Analyzing RBC Economics' Perspective

The commentary in the update notes that the minor decline in the second quarter is not entirely unexpected, as previous early estimates of GDP have exhibited a tendency to be revised. Furthermore, there have been indications suggesting that the obstacles to economic growth resulting from elevated interest rates have been quietly accumulating beneath the surface.

The Path Forward for Interest Rates

RBC recognizes that the central bank is unlikely to overly emphasize a single data point and acknowledges that inflation remains persistently above the targeted levels. Nonetheless, a cooling economy may provide some relief for borrowers. The update contends that there is accumulating evidence that the delayed consequences of earlier interest rate hikes are starting to exert a more pronounced impact in moderating both GDP growth and labor markets. Consequently, this should lead to a gradual slowdown in inflationary pressures. The update further posits that policymakers will want to maintain the option of resuming rate hikes if necessary. However, if the unemployment rate continues to rise, as anticipated, a resumption of rate hikes may not be required.

Read

I have sold a property at 57 Styles CRES in Ajax

We have sold a property at 57 Styles CRES in Ajax. See details here

Welcome to This Beautifully Updated 3 Bedroom, 3 Bath Detached Home. This Home Features An Open Concept Layout, Pot lights Throughout the Main Floor. Family Rm W/Gas Fireplace, Family-Sized Kitchen With Quartz Countertops & Island, W/Out To Deck From Breakfast Area. Primary Bedroom With 4-Pc Ensuite & W/I Closet, Second Floor Laundry. No Carpet - Engineered Hardwood Floors Throughout The House. Walking Distance To Parks, Close To Hwy 401, 407, 412, Amazon, Transit, Shopping And So Much More.

Read