Canada: Growth rebounds as possible NAFTA deal edges closer - ING

James Knightley, Chief International Economist at ING, notes that the Canadian economy grew by 0.4% month-on-month, a little above market expectations, showing that growth has begun to rebound following a slow start to the year.

Key Quotes

“We expect economic growth to remain strong over coming months, albeit with a moderation from last year’s exceptional performance - the Bank of Canada (BoC) is forecasting 2% growth for 2018 and 2019. However, the recent interest rate hikes are likely to see a switch away from household spending, towards stronger contributions from business investment and exports.”

“The latest development is that the temporary exemptions on US tariffs given to Canada, Mexico and the EU were extended by President Trump hours before they were set to expire, with a new cut-off and subsequent NAFTA deadline now set for 1 June.”

“This will come as a welcome relief for Canada and adds an incentive for a deal to be signed quickly.”

“Given Canada’s steady growth and firming inflation story we do not see the Bank of Canada thumb-twiddling once a NAFTA agreement is made. As such, we see the Bank’s hiking cycle recommencing in the second half of 2018 with two rate rises, starting in July.”