The Bank of Canada has announced that they will hold interest rates at the current 1.75%. The Canadian economy has started improving, however trade tensions continue to create risk and uncertainty for the future.

Bank of Canada Governor, Steven Poloz released a statement with the announcement saying, “Recent data have reinforced [the bank’s] view that the slowdown in late 2018 and early 2019 was temporary, although global trade risks have increased. In this context, the degree of accommodation being provided by the current policy interest rate remains appropriate.”

This is the fifth straight time that the Bank of Canada has chosen to hold the key rates. The bank cited many areas that have a positive outlook for the economy such as an oil sector that is beginning to recover, a stabler national housing market, strong job growth, increased consumer spending and higher exports as well as firming business investments. However, this is all tempered by the rising global trade strife. The bank is particularly concerned about the United States and China, saying that Chinese trade restrictions have had a direct effect on Canadian exports. 

The Bank of Canada remains significantly more pessimistic than most private-sector forecasters. In April, the bank downgraded its estimate of growth this year to 1.2%, down from 1.7%. It also said the economy would grow at an annual rate of just 0.3% in the first three months of the year. The bank’s next rate announcement will be  on July 10. It will also release its updated forecast at that time.

Statistics Canada echoed the Bank of Canada’s findings by releasing Gross Domestic Product (GDP) data from Q1 2019. Real GDP grew 0.1% in Q1 2019, the same growth rate as Q4 2018. 

Statistics Canada found that growth in real GDP was driven by a 0.9% increase in household spending and an 8.7% rise in business investment in machinery and equipment. These increases were moderated by a 1.0% decline in exports, coupled with a 1.9% increase in imports. Additionally, investment in housing continued to decline, down 1.6% in the first quarter.

A 1.0% increase in compensation of employees, evidenced in both goods- and services-producing industries, resulted in a 0.9% rise in household disposable income. Higher household spending, however, lowered the household saving rate from 1.4% in the fourth quarter of 2018 to 1.1% in the first quarter.

Source: The Globe & Mail
Source: Statistic Canada