As expected, the Bank of Canada held the benchmark rate steady at .25%. So far in 2020, Canada has experienced an energy sector shock, a shutdown of its service sector industry, real capacity destruction due to the coronavirus, and there is fear of a second wave of infections. However, despite the grim Canadian data of 16% unemployment, negative GDP growth for 2020 of 8% and a TSX stock market plunge of 37% at its worst low, there are positive signs for 2021.
Millions of those lost service sector jobs will come back in the coming months as reopening of the economy boosts growth, and as companies take advantage of the federal government's wage subsidy program. The Canada Emergency Wage Subsidy, which has been extended past June, offers a 75% wage subsidy to businesses whose revenues are down at least 30% year-on-year due to coronavirus. Added to these measures are: deferred tax balances for individuals, special GST tax credits, an increase in the Canada Child Benefit, mortgage deferral support, CERB, CESB, and EI assistance programs, deferral of student loans, property tax deferrals and many other measures to support Canada's labour force, and the likelihood of a 9% unemployment rate in 2021 is now forecasted as the recovery unfolds.
The housing market, which was on an uptrend prior to the advent of the coronavirus, came to a halt amid lockdowns and job losses. Data from various regional real estate boards confirm the sharp slowdown in activity in all major Canadian cities however we are still waiting on data to see if price declines will be significant or not. A sales rebound can be expected in Canada's major cities as lockdowns are eased but, like employment, recovery is unlikely to be complete until at least 2021.
The bond market is now pricing in a possibility of another rate cut in 2020, which could take Canada's key interest rate down to 0%. It is not likely that negative rates will be used in Canada. Monetary policy is having very little effect with the economy in shut down, but will dramatically help in the recovery in 2021.
The next rate-setting day is Wednesday, July 15th.
Source: Invis Financial