A rate rise from BoC this year looks likely – ING

“Turbulence in the energy sector looks set to drag Friday’s fourth quarter Canadian growth figure lower. Global risks are building too, but there are still some reasons for optimism on the outlook this year,” ING’s developed markets economist James Smith notes.

Key quotes

“The New Year has seen global oil prices regain some poise, but the impact of the production cuts will continue to be a drag on economic growth this year. More broadly, manufacturing fell for three consecutive months at the end of 2018 and business confidence dipped, which likely reflects the more uncertainty picture for global growth. This latter point may see investment dip back the fourth quarter growth numbers.”

“Away from energy, there are positives for the economy. Trade developments between the US and China have recently taken a slight turn for the better as the 1 March US tariff increase on Chinese goods deadline was pushed back. There’s a long way to go, but if a more permanent resolution can be found, the outlook for US growth still looks fairly reasonable. The solid US consumer backdrop and healthy jobs market isn’t likely to fade anytime soon, which is good news for Canadian exports. Better news on trade would also likely help oil prices, reinforcing our commodities teams’ view that Brent Crude and WTI should edge higher throughout this year and next.”

“The Bank of Canada will also be keeping a keen eye on the severity of any housing market downturn, trade developments between the US and China, as well as oil prices. If these downside risks don’t materialise, we expect the central bank to hike once (if not twice) this year. The next move is most likely to come in the third quarter, allowing time to see how the Federal Reserve acts over the next few months.”