Canada Economic Outlook - 19 June 2019

The year-end 2018 oil price slump and related oil production caps in Alberta dented Canadian economic growth, with real GDP advancing just 0.3% and 0.4% qoq annualized in 4Q18 and 1Q19, respectively. More positively, recent indicators show green shoots, and the 0.5% mom uptick in economic activity in March sets up for a solid improvement in 2Q19. Meanwhile, employment growth has been particularly strong, with an average of more than 50,000 net new jobs created per month in 2019, and the unemployment rate ticking down to a 45-year low of 5.4%. Wage growth also reaccelerated, to 2.8% yoy in May. On the price front, measures of core inflation stayed close to target for over a year. To the downside, oil prices have reversed a sizable share of recent gains and the US-led trade war has taken a turn for the worse. The unsupportive international backdrop and a likely US monetary policy rate cut in the fall leads us to revise our expectation for the Bank of Canada (BoC). We now see the Bank on hold through the forecast horizon, and also project a lower path for long bond yields.