Exports to lead Canadian recovery, rates to stay on hold: Reuters poll

Thu Oct 15, 2015 10:07am EDT
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By Anu Bararia

(Reuters) - The Canadian economy probably rebounded from a mild recession last quarter, helped by solid U.S. demand for its exports, but the recovery is not seen as strong enough to warrant an interest rate rise until 2017, according to a Reuters poll.

After slumping in the first half from a plunge in the price of oil, one of Canada's biggest exports, the economy will grow at an annualized rate of 2.5 percent in the third quarter and 1.7 percent in the fourth quarter, the survey of nearly 50 economists showed.

Still, after the economy's unexpectedly poor performance in the first five months of the year, the outlook for 2015 was lowered to 1.2 percent from 1.3 percent seen in a Reuters poll in July. That is expected to pick up to 2.0 percent next year, also a notch lower than the 2.1 percent forecast in July.

"The worst is probably over for the Canadian economy and it is going to get pulled up a little bit now by the strengthening U.S. economy," said Mark Hopkins, senior economist at Moody's Analytics. "It just simply won't be as strong as we were thinking a year ago."

The Bank of Canada cut interest rates twice this year to offset the shock of cheaper oil. While the survey of nearly 50 analysts predicts the next move will be up, forecasters still put the probability the next move would be a cut at about one-in-three.

The bank was seen holding its benchmark interest rate at 0.50 percent at its next policy meeting on Oct. 21, according to 41 of the 42 economists questioned on monetary policy, while one of those polled forecast an interest rate cut.

Interest rate futures markets are currently pricing about a 90 percent probability of no rate change at the meeting. BOCWATCH

Looking further ahead, the median forecast of the analysts was that the bank would hold rates through the end of 2016, with an increase coming in the first quarter of 2017.   Continued...