BoC predictions for next year are far too optimistic – observer

Canada will have to contend with serious downside risks in 2020

BoC predictions for next year are far too optimistic – observer

The Bank of Canada is considerably off the mark in its financial market predictions for 2020, David Doyle of Macquarie Group has argued.

Specifically, the banks projections for Canada’s economic performance next year are considerably more positive than what is warranted by current trends.

“What’s interesting about what the Bank of Canada did [last week] is that they strongly reduced their growth forecast for 2019, which I thought was appropriate,” Doyle explained in an interview with BNN Bloomberg.

“Where I do see downside risks to their forecast is more so in 2020. And in 2020, they’re calling for 2.2% growth or so – that to me is much too optimistic. I’m a full percentage point below that in my growth forecast.”

Moreover, the bank kept its 2% growth rate prediction for 2021, adding that this will be fuelled by recovery in exports and investments, as well as being aided by a progressively stable housing market.

Doyle cited potential economic sluggishness south of the border as a main factor in his more pessimistic prognosis.

“Canada’s actually had – despite our low growth for the last few years – we’ve had a very strong tailwind from a very robust U.S. economy,” he stated. “In the U.S. economy we still have strong, solid growth ahead, but it is likely to slow from here.”

Additionally, “in the first quarter of 2020, people that are renewing their five-year fixed-rate mortgages – they’re the same people that took out those mortgages when the Bank of Canada cut rates in the first quarter of 2015.”

“So you actually have a very significant rate-reset headwind that comes back in 2020 and persists through 2021. And it’s just a function of the fact that rates were very, very low over the 2015 and 2016 periods,” Doyle noted.