Canada: Not-so-great expectations - BNPP

Analysts at BNP Paribas suggests that the Bank of Canada (BoC) will likely stand pat while waiting for fiscal policy to kick in and the mix of domestic fiscal stimulus, a cheaper currency and a boost from likely fiscal stimulus in the US may be enough for not-so-great Canadian growth prospects. 

Key Quotes

“Growth should remain muted as lower real incomes dampen consumption. Despite CAD depreciation, exports face competitiveness issues. Business investment should grow in 2017, especially with higher US growth, but contribute modestly to overall GDP.”

“The government’s fiscal program should support growth; we expect it to add about 0.6pp to overall 2017 GDP. If the BoC were to ease, this could spur more household borrowing, worsen domestic imbalances and barely stimulate investment and exports.”

“We remain more bearish on growth and inflation than the BoC and consensus, stemming our belief that consumption growth will continue to be constrained by lower real incomes.”

“Risks remain tilted to the downside, as a still-inflated housing market and high household leverage remain.”