9 May 2016
CAD: Too soon to call recovery? – ING
James Smith, Economist at ING, suggests that despite maintaining the lowest unemployment rate of 7.1% since March 2013, recent figures on the Canadian economy suggest the underlying economic story may not be so rosy.
Key Quotes
“The overall change in employment during April was fairly negligible – in total, the economy lost 2,100 jobs in April, led by a 2,400 decrease in full-time employment and slightly offset by a 400-person increase in part-time employment. This followed last month’s surge in employment (40.6k jobs), keeping the unemployment rate at 7.1%.
The overall trend in the labour market this year has been fairly positive, reversing some of the hard-hitting effects stemming from the plunge in crude oil prices and could be seen as an encouraging area of stability in the Canadian economy. Bank of Canada Governor Stephen Poloz recently reiterated that the economy is in a transition towards non-resource production, with “positive forces dominating later this year”.
Moreover, recent data releases in Canada have pointed to weaker overall economic activity. The fall in GDP during February and the largest ever international merchandise trade deficit, with all bar one sector posting a MoM decline, suggest that the pace of recovery has stalled over the past few months.
Given the downturn in manufacturing and recent wildfires in Fort McMurray, situated in the heart of the Alberta oil sands, we can expect further weakness over the summer months. This will give the BoC some cause for concern and we wouldn’t be surprised to see it take a more dovish line at the next couple of meetings. The odds of the BoC following Australia in cutting rates further will increase (although at 0.5%, it has less room to manoeuvre) – markets are currently only pricing in a 3.6% and 8.0% chance of a cut in May and July, respectively.”
Key Quotes
“The overall change in employment during April was fairly negligible – in total, the economy lost 2,100 jobs in April, led by a 2,400 decrease in full-time employment and slightly offset by a 400-person increase in part-time employment. This followed last month’s surge in employment (40.6k jobs), keeping the unemployment rate at 7.1%.
The overall trend in the labour market this year has been fairly positive, reversing some of the hard-hitting effects stemming from the plunge in crude oil prices and could be seen as an encouraging area of stability in the Canadian economy. Bank of Canada Governor Stephen Poloz recently reiterated that the economy is in a transition towards non-resource production, with “positive forces dominating later this year”.
Moreover, recent data releases in Canada have pointed to weaker overall economic activity. The fall in GDP during February and the largest ever international merchandise trade deficit, with all bar one sector posting a MoM decline, suggest that the pace of recovery has stalled over the past few months.
Given the downturn in manufacturing and recent wildfires in Fort McMurray, situated in the heart of the Alberta oil sands, we can expect further weakness over the summer months. This will give the BoC some cause for concern and we wouldn’t be surprised to see it take a more dovish line at the next couple of meetings. The odds of the BoC following Australia in cutting rates further will increase (although at 0.5%, it has less room to manoeuvre) – markets are currently only pricing in a 3.6% and 8.0% chance of a cut in May and July, respectively.”