Canada’s Economic Data “Slows Down” Interest Rates

For the second quarter of 2006, Statistics Canada reported that our GDP rose to about two percent annually, less than what analysts were expecting at about 2.3%. This is in even more striking contrast to the first quarter of this year, when Canada’s GDP rose to 3.6%. Driving down GDP was lower consumer spending, business investment and a slowing in Canada’s real estate market, particularly in western Canada.

As far as economic activity is concerned, Stats Canada announced that from May to June, it remained more or less the same. Gains in service industries rose, particularly retail sales, wholesale, financial services, insurance, and, to an extent and depending on the region, real estate, while production of goods dropped, such as manufacturing, mining, and extraction of oil and gas.

What this means for Canadians? Well, since economic data is neither here nor there, the Bank of Canada’s view of interest rates is likely to be similar. The consensus on the street is that for the rest of 2006, interest rates are not going anywhere. The rationale is as long as our economy is growing at a slower pace, there is no need to raise interest rates.

Generally speaking, analysts also agree that the Canada’s GDP is trending upward, at a steady rate of three percent on an annual basis. In spite of the less than spectacular economic data for the second quarter, the “soft patches” tend to be limited to the trade sector. According to Stats Canada, our exports went south, while imports rose at a much higher rate.

So, for those of you on the interest rate watch, you may put down your binoculars for the remainder of the year. When I watched one of my favourite TV shows, “Hot Property,” on the show’s panel were a few quite excited mortgage brokers, who not only welcomed forecasts that interest rates are likely to stay put in the fourth quarter, but who also dared to go “where no one else has gone before,” and predicted that interest rates are even likely to fall down.