A Canadian economist is warning that the Bank of Canada is far too optimistic on the country’s long-term outlook, but says he sees a bright spot for some sectors that can benefit from strength in the global economy.

“What’s interesting about what the Bank of Canada did [Wednesday] is that they strongly reduced their growth forecast for 2019, which I thought was appropriate,” said David Doyle, North American economist and Canadian market strategist at Macquarie Group, in an interview with BNN Bloomberg Thursday.

“Where I do see downside risks to their forecast is more so in 2020. And in 2020, they’re calling for 2.2 per cent growth or so – that to me is much too optimistic. I’m a full percentage point below that in my growth forecast.”

The Bank of Canada abandoned its bias toward raising interest rates in its latest policy announcement Wednesday, amid a slowdown in the Canadian economy. The central bank left its benchmark rate unchanged at 1.75 per cent for a fourth straight decision.

However, the bank maintained its estimate for 2.1 per cent growth in 2020 and projected a two per cent growth rate in 2021, stating that it sees the housing market stabilizing, and a recovery in investments and exports.

But Doyle said there are two main reasons to anticipate slower activity than what the central bank is forecasting for next year.  

“In the first quarter of 2020, people that are renewing their five-year fixed-rate mortgages – they’re the same people that took out those mortgages when the Bank of Canada cut rates in the first quarter of 2015,” he said. “So you actually have a very significant rate-reset headwind that comes back in 2020 and persists through 2021. And it’s just a function of the fact that rates were very, very low over the 2015 and 2016 periods.”

The second factor Doyle sees hindering growth in Canada is a softening in the U.S. economy.

“Canada’s actually had – despite our low growth for the last few years – we’ve had a very strong tailwind from a very robust U.S. economy,” he said. “In the U.S. economy we still have strong, solid growth ahead, but it is likely to slow from here.”

Doyle said he expects the central bank standing pat on rates at least through the end of this year after Governor Stephen Poloz removed reference to future increases.

“I see a greater chance of easier policy as we move into 2020,” Doyle said. “There’s a much greater probability on that time horizon that growth data will disappoint relative to their forecast.”

Although Doyle remains relatively pessimistic on Canada, he is optimistic about the global economy, which he says could benefit some Canadian sectors, like technology and energy.

“I think it’s interesting when you look at what have been the strongest-performing sectors in the TSX this year. They’ve tended to be the sectors that have more leverage to global activity rather than domestic economic activity,” Doyle said.