Canada’s GDP lower than expected in February: instant reaction

Canada’s GDP lower than expected in February: instant reaction

to talk about all of this we’re joined
by Dylan Smith he’s senior Economist at
Rosenberg research Dylan thank you so
much as always for coming in today your
thoughts well there’s no way around it
that was a disappointing number um Not
only would did we see a revision to
January which was you know coming into
the year looking quite strong we’ve
missed consensus in in February and it
looks like we’re flatlining in March uh
all that points to growth under 1% for
the cter analyzed I would think which is
well below the bank of Canada’s
expectations uh and so a disappointing
round of growth
news here you saw the Looney dip as soon
as these numbers were released are
currency markets predicting a June rate
cut from the Bank of Canada I think
that’s looking more likely after these
numbers uh we saw in the minutes from
from the bank of Canada’s last meeting
that there was a segment of governing
Council who were still seeing growth
coming in a little stronger than
expected and and saying that that might
cause them to push for a slightly raer
later rate cut that looks very unlikely
now after these numbers
Rob yeah this is right in line which uh
you know a very very soft Landing here
in Canada I think we’re going to
probably still skate uh onside uh no
major recession here but just give it
enough cover for them to start cutting
in June maybe we get three this year you
know if it gets worse they can do 50 all
at once in one of the months um I
thought I thought they should have done
it in April but I was worried that they
might put a little bit of fire on the
housing market in the spring selling so
they probably have deferred it and this
this data lines up with with uh with a
cut coming in June in my opinion and to
my point earlier in the show start
looking at uh High yielding dividend
stocks that have good balance sheets and
are high quality because money is going
to start to flow into those sectors when
when the rate cut cycle uh Starts Here
Dylan uh we’re hearing from statscan and
not surprisingly that gross domestic
product was led by the mining segments
gold and copper prices are high by the
oil and gas segment uh oil prices are
certainly high as well how should uh how
should Canadians think about that that
the the the the meager growth that was
achieved uh came from those segments
exactly I think that that was behind a
lot of the relative strength predicted
by by economists leading up to this
number was that we’d see this windfall
from higher prices helping out on the
export front uh alongside the the we
alony um and all this just tells us is
that domestic demand investment and and
domestic consumption is is that much
weaker those of course of the things
that are very sensitive to to typ the
tight polc policy stance and so the
banker account will be looking at this
and saying well it’s might be working
even better than we thought um and time
for a cut and just to pick up on Rob’s
comment on the housing market another
thing we saw from the minutes in the
meeting last week was was a very
explicit statement saying you know we
are aware of the risk on the housing
market that you know as soon as we cut
we might see a little bump in prices we
don’t know how large that will be but
importantly what they said was it
doesn’t matter when we cut that will
remain a risk right and so essentially
sign signaling to the market this is not
going to hold us back m
you note that there have been six cases
in history of the Bank of Canada cutting
rates before the fed and you’ve got some
thoughts on what that means to investors
yeah I mean we we took a look at this
going back in history because I think
there is a widespread perception out
there that that the Bank of Canada is
more anchored on the FED than than they
actually are right um in the last 20 or
30 years the the bank has eased before
the FED um because local conditions have
have demanded it um and in all of those
cases you’re seeing pretty much what
you’re seeing play out right now which
is a sh we the Looney and domestic
equities looking a lot more attractive
on a relative basis than us equities and
of course outperformance in the bond
market as well do you agree with Rob
that the Canadian economy appears to be
headed for a soft landing and no
recession I don’t think this has soft
Landing in it I think this has um you
know they might Dodge a technical
recession per CD house definition at the
same time CD House’s own leading
indicator is pointing to even more
weakness coming through the rest of the
year so you know I say it’s it’s odds on
that that we could see two quarters of
negative growth coming up Rob
what’s your view on how aggressive uh
our bank can do versus the us could we
get ahead of them by 50 75 what what’s
the what’s the toggle in your mind yeah
so I think I to your early Point around
the housing market I think once that
initial cut happens there’ll have to be
a point where we look at what happens to
relative Financial conditions does that
lead to a sudden swell and borrowing
from Canadians who have been waiting for
that signal and and that actually
leading them to slow down a little
there’s an argument that that’s what
happened to the FED in that very divish
December meeting where which you know
caused a lot of enthusiasm that cuts
were coming and all this preemptive
action so there will be a bit of wait
and see from the Canada from the Bank of
Canada I think after the first cut but
you know based on where inflation is
going in the fed and and where the fed’s
bar is for cutting it’s quite possible
that we could see two or three Cuts
before one comes in the fed and is there
a a level of the dollar is at 70 cents
that is kind of like okay we better not
uh push it too much below that is there
some some views there on the currency
yeah I mean I think that will factor in
I don’t think that’d be a a hard number
that that looking at but when you get to
around those levels you do start seeing
those negative effects Ripple through
and especially through into the
inflation Outlook so I think that would
be facted in but you know I wouldn’t
call it a a hot Target right

Dylan Smith, senior economist, Rosenberg Research tells BNN Bloomberg that a currency rate cut is possible in June after these numbers.

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