What to Expect in the Months Ahead

Thursday, October 26th, 2006
By Inya Ivkovic, MA for Profit Confidential

In a recent PROFIT CONFIDENTIAL article, I wrote about Ontarians having to brace themselves for a bumpy ride in the months ahead. However, the rest of the country may not fare all that bad. Although the Bank of Canada lowered its GDP expectation, it still remains optimistic about future growth. The main driver of Canada’s economy will be stronger consumer spending and lower interest rates as inflation retreats in most Canadian provinces.

The governor of the Bank of Canada, David Dodge, reiterated the two percent inflation target, and its commitment to balance as much as possible the demand versus supply scale. Granted, weaker U.S. economy is going to have an adverse impact on Canada’s economy. However, our strong domestic economy, with higher wages and a housing sector that still has some spunk left in it is there to offset any negative ripple effects.

Having said that, the Bank of Canada is very likely to stay put when it comes to monetary policy–at least until the end of the fourth quarter. Going into the New Year, some economists expect an overnight lending rate to be cut by 50 basis points during the first six months. More conservative views expect only a 25-basis points cut, but not to be seen until late next year.

What does it mean to Canadians? Well, owning a home in Canada is going to remain relatively affordable, jobs are still relatively easier to come by in Canada, and even as our neighbor’s economy is slowing down, we still have some fuel left in our engines. By the looks of it, not even tough times are as tough as they used to be.

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Tags: GDP, interest rates, U.S. economy