Canada’s central bank may be moving a little faster than the market anticipates. The Bank of Canada (BoC) released its quarterly market participant survey (MPS) this morning. The survey asks prominent financial market participants what they’re expecting in the coming months in terms of economic growth, inflation, and policy. Most respondents see Canada’s real GDP showing lackluster growth, but it can’t be all that bad—they don’t see rates falling nearly as much as many anticipate. Over the next two years, Canada’s most prominent financial professionals see interest rates staying higher for longer. They won’t even return to 2019-levels by the end of 2026, according to the majority of forecasts.
Canada’s Economy To Lag Global GDP, Fail To Meet GDP Potential
The Canadian economy is expected to lag global growth in the foreseeable future. Most MSP participants (53.9%) see real GDP advancing 1-2% in 2024, way behind the global forecast of 3% the BoC shared in their last report. Most (66%) anticipate annual growth of 2% or lower in 2025, though how much lower wasn’t as firm as this year’s data.
It’s easy to see why they expect such slow growth—a lack of productivity. The vast majority (81.5%) expect GDP output will remain negative. That means they’re expecting output to be significantly below its potential. Think of it like this—experts aren’t mad about the lack of output, they’re just disappointed we’re not living up to our full potential.
Bank of Canada Interest Rates To Stay Higher For Longer
MPS also don’t see the BoC slashing rates nearly as aggressively as many are hoping. The median forecast shows they expect rates to fall another point to 2.75% by the end of 2025, and hold that level through 2026. At 37.5% higher than pre-pandemic, that’s not necessarily a bad thing. Though in this context it’s not clear that it’s definitely a good thing either.
Policymakers frame higher rates as a negative, presenting the level that followed the Great Recession as normal. However, higher rates are typically a sign of demand remaining robust enough to boost inflation for goods. That’s a sign of an economy that’s doing just fine, as well as one that can actually afford to pay depositors interest that’s higher than the rate of inflation. A surprisingly optimistic forecast, even though it may not present that way.
They have to keep rates higher just to catch up to inflation for the next 10 years.
The only way the housing market can properly correct and adjust to wages is to have higher for longer. We already seen what money for nothing can do. Until things equalize anyone starting from scratch will have a difficultly getting into the housing market.
Higher for longer should impact the investor owners of properties that will need to find other investments that can yield a postive return.
Bank of Canada DOES NOT have a choice. They are obligated to lower rates as much as possible to support the real estate market. People depend on their houses to increase in price.
I do not understand the upside for Canadians to sell expensive wood shacks to eachother.
For a Canadian that actually has to live in their primary residence..
In the best case, you buy a shack, the price increases, and you can trade-up to a proportionally same sized (also more expensive) shack in the same location (because too bad – everything increased): No nett gain.
In the second best case you sell your shack, you get out and buy your next shack in a different location, thus some chance of keeping the gain. You will have to say goodbye to your friends, family and other comforts though. Capital flight and depression for an economic area.
Now in the third best case you sell your shack, and buy your next shack in a country (i.e. NOT Canada) that has better affordability. You get the hell out. (i.e. that not tries to be the Switserland – extremely high cost of living – ) of North America, without any Swiss neutrality benefits) Uproot your life completely.
So you see the best case is you are flipping expensive houses to eachother at best, and the worst case is prepare to have your social live and ties totally f’ed and take the loss.
Unless you’re an investor though and you don’t live in your house and you live in Dubai.