Rosenberg: Canadian economy like an 'emperor without any clothes'
David Rosenberg thinks there are too many uncertainties facing the Canadian economy to entertain the idea of the Bank of Canada raising interest rates in the near-term.
“I think that the operative word in Canada, which was there in the press statement is one of ‘uncertainty,’” The Gluskin Sheff + Associates chief economist told BNN shortly after the Bank of Canada maintained its benchmark rate at one per cent on Wednesday.
“As far as I’m concerned when you have underlying inflation so far below target and your central bank talking about uncertainty, the path of least resistance is to stay on the sidelines ... which I think the bank will do irrespective of whether the Fed continues to hike interest rates in the United States or not.”
Rosenberg pointed to a myriad of potential hurdles facing the Canadian economy as evidence that the central bank will proceed with caution into 2018, including coming mortgage stress tests, regulations that will force the banks to keep more capital on their balance sheets and the minimum wage increases slated to take effect in Ontario, Alberta and Quebec.
All these factors should be signs for the bank to exercise caution, according to Rosenberg, a feeling reflected in his own personal outlook for the national economy.
“I’m actually quite concerned,” he told BNN. “I wouldn’t say I’m bearish on the Canadian economic outlook, but I think caution is the watchword. And, that’s why I think it’s reasonable to assume that the Bank of Canada does nothing for the foreseeable future and, actually – next year, in that period of caution and, say, sub-two-per-cent growth - we’re going to need that weaker Canadian dollar to help goose the exports side.”
His bet is that the bank will see these hurdles coming and not move its benchmark rate at all in 2018, despite predictions that the bank could make as many as three moves higher.
“I don’t think the bank is going to go at all next year,” Rosenberg said. “I think for the bank to go three times next year a lot of things have to go right. A lot of those uncertainties that we discussed really have to subside in a very big hurry. I’m not so sure that they will and, we’ll have to have signs at the same time that underlying inflation is accelerating, at least towards their target.”
“A Bank of Canada rate hike is certainly not anywhere close to the top of my list in terms of concerns or forecasts for 2018.”