Canada’s economy may be slowing, according to reports on jobs, trade and housing due to be released today, just three days after the central bank said the country’s economic momentum was intact.
Employment growth in the world 10th-largest economy is forecast to slow while the country’s trade surplus may narrow, according to economists surveyed by Bloomberg. The federal housing agency will also report housing starts for May, which are projected to fall to a pace of 215,000 units from 244,800.
Bank of Canada policy makers led by Governor Mark Carney held their key interest rate at 1 percent on June 5 and said the country’s underlying economic momentum is in line with projections, even after first-quarter growth that trailed its earlier forecast and as risks posed by Europe’s debt crisis intensify.
“Canada’s growth rate is slowing, and it was not at a feverish pace before,” said Derek Burleton, deputy chief economist at Toronto-Dominion Bank in Toronto.
The Canadian dollar fell to a six-month low of C$1.0447 per U.S. dollar this week, and traded for about C$1.0275 yesterday. Some investors are betting the central bank will cut its key rate by December, trading in overnight index swaps shows.
The economy grew at a 1.9 percent annualized pace between January and March, Statistics Canada said June 1, less than the central bank’s 2.5 percent forecast. Consumer spending grew at the slowest pace in three years, the statistics agency said.
Finance Minister Jim Flaherty said June 4 he’s prepared to offer fresh stimulus if it’s required and that growth so far this year has been about what he expected. “These continue to be sensitive times,” Flaherty said in Toronto. His March budget also proposed cuts in government jobs to help balance the budget.
It’s too soon for policy makers to react to signs of a slowdown given some contradictory risks from abroad, said John Clinkard, chief economist at Deutsche Bank Canada in Toronto. European leaders are still working on a solution to the region’s debt crisis, while the U.S. Federal Reserve said June 6 that the U.S. economy maintained a moderate pace of growth as factory output rose and the real-estate market improved.
“The Bank will hang tough for a while given that the U.S. data flow is still positive and there is still so much uncertainty about Europe,” Clinkard said. “If the job data is really negative it will possibly limit their scope for action.”
Today’s reports follow data from earlier this year when Canada reported the biggest two-month increase in employment in more than three decades and the fastest pace of housing starts since 2007.
Canada’s trade surplus has narrowed from C$3.2 billion in December. If the country does avoid a deficit, it would mark the sixth straight monthly surplus -- the longest stretch since late 2008 when the country was sliding into a recession.
“Deterioration in the balance is only really a bearish signal for the economy if it comes from weak exports,” said Avery Shenfeld, chief economist at CIBC World Markets in Toronto. “If it’s due to strength in imports it can simply reflect strong Canadian demand,” said Shenfeld, the most accurate trade forecaster in Bloomberg surveys over the past two years, who predicts today’s report will show the surplus being erased.
A slowdown in housing would probably be welcomed by the central bank, which said this week that some withdrawal of monetary stimulus “may become appropriate” and that strength in housing had led the recovery to become “less balanced,” said Ian Pollick, senior fixed income strategist at RBC Capital Markets in Toronto.
“In my mind, the Bank maintained its hawkish forward-looking language for a reason, as growing domestic imbalances created in the wake of low rates is beginning to have an effect on the real economy,” Pollick said.
Demand for homes, along with public works projects and energy projects, has helped drive the share of Canadian employment involved in construction to a record high.
The central bank’s rate has been at 1 percent since September 2010, the longest pause since the 1950s, while five-year mortgage rates have been at or near record lows most of this year, averaging 5.44 percent last week.
Meanwhile some companies tied to global demand are announcing job cuts. Bombardier Recreational Products Inc., which makes Sea-Doo watercraft and Ski-Doo snowmobiles, said May 31 it will shift some production to Mexico from Valcourt, Quebec, while telecommunications equipment-maker DragonWave Inc. said June 4 it is cutting 68 jobs in Ottawa and Israel.