Canada is enduring arguably its toughest economic stretch in years – oil and gas has tanked, the dollar is way down and the economy and housing markets across the country are increasingly spotty.
As the first quarter of 2015 wraps up, it seems an appropriate checkpoint to review key economic and housing indicators – the issues Bank of Canada Governor Stephen Poloz is dealing with, as compared to his predecessor Mark Carney.
Poloz, who is approaching two years since taking over from Carney, has seemingly dealt with dark clouds from day one. Some “experts” have been calling for sky to fall on the housing sector for years, and while some regions are facing their most serious market challenges in years, it simply hasn’t happened. The price of oil is roughly half what it was when he took office in July 2013, imparting all kinds of issues for oil-producing provinces to deal with.
Now, Poloz, who recently described first-quarter growth as “atrocious,” is warning Canadians that the economy could miss even reduced expectations, hinting the Bank may take measures to fight the slump triggered by a collapse in oil prices.
Compare this to the memory of the BoC led by Carney, the “rock star” governor who served from 2008 to 2013. Under Carney, the economy seemed to sail along – the dollar was strong, housing performed well, household debt was under control, and perhaps most notably, he guided Canada through the Great Recession. Indeed, this performance quite likely helped earn him his current post as governor of Bank of England.
Under Poloz, things appear to be getting tougher – the economy is withering in certain areas, the dollar is weaker, household debt keeps rising, and housing affordability is seriously tested in some markets.
But is this actually the case? The table below provides some insight into key economic and housing factors at three key junctures: July 2010, roughly halfway into Carney’s term; July 2013, when Poloz took over; and current day, March 2015.
The Poloz-led BoC and economy, by some measures, look to be performing better than that under Carney. Yes, average household debt is rising, but much of that debt is in Canadians’ real estate holdings, buoyed by low interest rates and appreciating values.
So, how much can a BoC governor and his policies control these economic factors, and what might it all mean for the next rate announcement and monetary policy report on April 15?
In January, remember, Poloz surprised all by lowering the overnight target rate by 0.25 per cent to 0.75 per cent. This action, experts believe, was designed to shield highly indebted Canadians from the drop in oil prices and its economic impact. And since things hadn’t improved markedly, the Bank held the rate at its next announcement on March 4.
Given the “atrocious” performance, is another rate cut in the works?
At least one major Canadian bank has its doubts; it’s likely a case of “one and done” for Bank of Canada rate cuts, according to BMO Capital Markets, in its Rates Scenario for March 2105.
“We judge that only if Q2 fails to rebound (which is not our call), would the Bank consider another rate cut. However, once we move past the July meeting, the risk of further easing falls materially, as there’s little chance of the Fed and BoC moving in opposite directions. It seems that it’s one and done for BoC rate cuts.
“The probable next move for the Bank is a rate hike, sometime well into 2016 and after current positive Canada-US overnight rate spreads touch negative territory.”