Slow, Steady Economic Growth, with No Rise in Bank of Canada Rate until Next Year

There's still lots of turbulence in the global economy, with Europe in recession, the US growing at a modest pace, and China's demand for commodities slowing. But in Canada, there's reason to be modestly optimistic. After slowing in the second half of 2012, our economy recovered somewhat in the first quarter of 2013, and the Bank of Canada is forecasting growth of 1.5% for the year as a whole. We added 95,000 jobs in May, retail sales rose strongly in February, housing starts jumped 13.8% in May, and core inflation has remained at the low end of the Bank of Canada's target range for the past nine months. Of course, the stock market took a beating in June, but that's actually the result of a good news story. What triggered investors to sell was the US Federal Reserve suggesting that it may soon stop adding stimulus to the economy since the US is beginning to show more signs of growth. Investors took that as a signal that interest rates may soon start rising, which would raise the cost of money. The fact that the US economy is growing in spite of the massive government cuts that were triggered in March (known as the sequestration) is remarkable. This demonstrates that there's underlying strength south of the border, which is always good news for Canada. However, our economic growth is likely to lag behind the US. It's unlikely that our inflation rate will rise beyond Bank of Canada targets until late 2014 or early 2015. Also, thanks to tighter mortgage rules, growth in mortgage and consumer credit has slowed significantly. These factors give the Bank room to maintain the current overnight rate of 1.0% for the rest of this year, with rates unlikely to start creeping up until the second half of 2014. If you'd like a free analysis of how these forecasts might affect your mortgage, please feel free to call me today. Kupina Mortgage Team | www.kmortgage.ca