Canada’s Economy Is Supporting Higher Rates, No Cuts In 2023: BMO

What recession? Canada’s economy continues to grow against the forecasts of experts. In a research note to investors, BMO explained they’re making an upward revision to its Canadian gross domestic product (GDP) forecast. Despite climbing interest rates, the economy continues to outperform. That has the bank warning that higher rates will stick around longer than many anticipate. 

Canada’s Economy Is Doing Better Than Expected, Despite Higher Rates

Canada’s economy is doing much better than expected, despite sky-high interest rates. As a result, BMO revised its GDP growth estimates, raising their forecast from 0.8% to 1.5% for the 2nd quarter. It would bring their annual growth expectations to 1.5%, slightly higher than previously anticipated. This is far from an economy showing stress due to interest rates—expectations are rising alongside rates. 

Bank of Canada To Hike In July, But The Terminal Rate Is Here

BMO doesn’t see the revised expectations as enough to change the current trajectory. The Bank of Canada (BoC) will make its next rate decision on July 12th, and another hike is still expected. It’s seen as the last increase needed, but the data would have to show moderating  activity. 

“Early readings next week on home and auto sales for June will help inform the Bank on how the consumer is holding up. We have penciled in a final 25 bp hike, but it will likely come down to next week’s June employment report,” explained Douglas Porter, chief economist at BMO. 

Porter’s bank is forecasting just one more hike now. They see these rates sticking around for a while afterwards. 

Canada’s Economy Is Too Strong For Interest Rate Cuts

Looking forward to rate cuts by the end of the year? You might be disappointed, because few experts are entertaining that possibility at this point. 

“Even if the Bank chooses not to hike further in July, the larger picture is that the risk remains for higher rates, for longer, and rate cuts are a 2024 story,” said Porter. 

Adding, “For a final thought on that theme, we have long been of the view that central banks would begin trimming rates in early 2024 amid calmer inflation-we’re not changing that call, yet, but the risks are clearly tilting to a later start for rate cuts amid the resilient economic backdrop.” 

It might sound like bad news to some, but it’s actually great news. Rate cuts are for economies that need stimulus to drive growth, attempting to let consumers borrow future income to stimulate consumption today. 

Canada’s economy has managed to grow at a brisk pace, even as interest rates climbed to a generational high. Credit growth is tapering, but the economy continues to show growth more in line with real income. 



We encourage you to have a civil discussion. Note that reads "civil," which means don't act like jerks to each other. Still unclear? No name-calling, racism, or hate speech. Seriously, you're adults – act like it.

Any comments that violates these simple rules, will be removed promptly – along with your full comment history. Oh yeah, you'll also lose further commenting privileges. So if your comments disappear, it's not because the illuminati is screening you because they hate the truth, it's because you violated our simple rules.

  • Ray 12 months ago

    Yes the economy is strong and all those people running to the banks getting extended 80 year amortizations is perfectly normal.
    Homelessness increasing everywhere is also a good sign of a strong economy. Massive food bank lineups is also another good indicator of a strong economy. Please feel free to add if you’re noticing a stronger economy.

    • Biff Boffo 12 months ago

      Highest household debt in the G7, one of the worst productivity levels, more people with degrees than jobs requiring a degree and my favorite more jobs for people with a high school education than people to fill them.

    • Udon 12 months ago

      It isn’t so much the Canada’s economy overall is strong, it’s the fact that corporations get greedy and every time the bank of Canada raises the interest rates the following day gas goes up 10 to 15 cents and within a week food prices go up again. The corporations are using the interest rate hikes as a reason to charge more money for everything. Canadians aren’t spending anymore on anything than they were 2 years ago it’s just that the same things they’re spending money on; food gas utilities clothing etc has dramatically increased in price due to corporate greed. The housing market might be hot still right now but I promise you that isn’t due to new homeowners buying a houses because nobody can afford it, instead it’s super rich people who have absolutely no issues with the interest rate hikes and are buying up foreclosures to make money. Why are we punishing people with existing loans and instead targeting people looking to get new loans and mortgages? The BOC is being run by old people who have no clue on what’s currently happening and are using ideologies from the early 80s as their reasons.

    • Franky T 12 months ago

      Don’t forget, those 80 year amortizations are only for the current term. The amount due will be reset at renewal for the remaining full period!
      Good news. We wouldn’t want people to avoid the consequences of their decisions now, would we?

      • Richard Zywotkiewicz 12 months ago

        What drugs was this writer on? They just posted zero GDP growth in May, way lower than expected, and delinquencies are up. economy is in shambles.

      • Mark 12 months ago

        That’s a valid observation. It only kicks the can down the road a bit, and defers the pain. All of these “assessments” are completely out of touch at ground level.

    • Mark 12 months ago

      And I’d hardly call 9% per annum food cost, and people struggling to pay rent and eat, a brisk econ. Absolutely inane assessment.

    • Yoroshiku 11 months ago

      My neighbour owns multiple dwellings and is about to dump 2 because the price of his mortgage is about to readjust and become a lot higher. I wonder how many others like this there are in the GTA?

    • Jerry 11 months ago

      You’re absolutely right … all they have is population growth to drive their numbers. Productivity is non-existent. GDP per capita is actually on the decline.

  • Parzad 12 months ago

    Just go road behind the superstore or home Depot stores some places see how many RV parked with tarp on it.
    You right see how many lines up for food bank. That is right it is good economy. I came back from my trip to Spain and Portugal. (I used to live in Europe) Check online google it, see how price of living is much much moderate with income,..I know inflation is everywhere but that is not pretext to justify having a roof on your head with mortgage unit you die or afterward.

  • Andrew Baldwin 12 months ago

    Doug Porter is very knowledgeable, but not about core inflation: “while headline inflation is dutifully coming down the mountain in most major economies—courtesy of $70 oil—core inflation is barely budging. . .” This is absolutely false, if one looks at CPIX, the operational guide the Bank of Canada followed until the dysfunctional 2016 renewal agreement. It has fallen from a post-recession peak of 6.0% in June 2022 to 5.6% in December and to 3.7% in May 2023. This is in large part because it excludes mortgage interest cost (except, unfortunately, for mortgage interest on secondary residences in the all other owned accommodation component, which is still part of the CPIX). The mortgage interest cost series all-time lowest 12-month inflation rate was -9.3% for August 2021, and has since had an uninterrupted series of increases, taking it to 18.0% in December and to 29.9% in May. The last annual inflation rate is an all-time high for the series, but Doug is reconciled to another overnight rate hike that will take the mortgage interest cost inflation rate substantially higher still. None of the measures in the new operational guide exclude mortgage interest cost on principle, although there is no reason that they couldn’t. After all, they do exclude change in indirect taxes and subsidies. The CPI-common measure in particular seems to be highly correlated to the mortgage interest cost index, which helps explain why it had an inflation rate of 6.5% in December 2022, which has only been reduced to 5.2% for May 2023, i.e., 1.5 percentage points greater than the CPIX series that it replaced as operational guide. Now, of course, the Bank of Canada itself rejects CPI-common as a core measure, but what were Tiff Macklem and Chrystia Freeland doing in 2021 when they had to renew the inflation-control agreement and they left CPI-common in the operational guide? Surely the defects in the series that are obvious now were also obvious then. Doug may be reconciled to an increase in the overnight rate this month, but he really shouldn’t be.

  • Biff Boffo 12 months ago

    Wrong, rate hikes take time to affect anything.

    Experts my ass.

  • Cashman 12 months ago

    G + I + C ( X-M) = GDP , at least that’s what the calculation used to be.

    The G part is going unchecked, thus we may never see a recession again due to this calculation.

    We really need to find new gauges of economic health 🙂

  • Zara 12 months ago

    We are slow so much this year that we are paid to do nothing once a week. I am full time Unionized employee that is why I get paid to do nothing once a week. 1300 position have been already terminated and people who are part time employees get one day of work every two weeks, these same part timers were working full 40 hours weeks the last 10 years. Every one I talk to say they are extremely slow. We had one million new Canadians added to the economy last year which is an increase of 2.5% while the economy only grew by 1.5% compared to last year which means compared to the growing population the economy is lagging behind. All the data is flawed showing rosy figures. When the economy is going to start to tank then all hell will break lose.

  • Wayne Strainer 12 months ago

    Great comment Biff. I am yet to hear an economist or an expert state how homeowner’s paying higher mortgage rates help fight inflation or more to the point. How does one cohort of citizens giving another cohort who are private citizens and entities, how does giving them more money help reduce inflation? Aren’t they consumers as well? Don’t they purchase goods and services? How come their spending is anti inflationary but mine is pro inflation? Class warfare plain and simple.

  • Dennis_K 12 months ago

    As much as I am cheering on higher rates and a substantial drop in home sale (and subsequent rental) prices, I think it’s only half the solution.

    Higher rates affects the ability to borrow (domestically), and those who mainly need to borrow are what we could refer to ‘working class’ persons, who earn within the band of ‘median wage’, and obviously live and work (and pay taxes) in Canada.

    However, with illegitimate funds (and/or foreign funds) still being allowed to plow into residential real estate, this still allows for the real estate industry’s ‘comps’ to be set higher than what local incomes dictate, again exacerbating the affordability problem.

    Seems like there’s still opportunities for prudent policy making and implementation, if someone wants to run with it.

    • Yoroshiku 11 months ago

      Houses have started moving pretty briskly again in my area. My realtor buddy tells me a lot are all cash deals. A friend’s 30 year old townhouse (in need of reno) just sold for $1.8M, all cash. A neighbor just sold her unrenovated 1980s home for $2M, all cash, before it was even listed. Who has all of this cash? My realtor buddy said some people are people buying homes at the rates they were approved at a few months ago, before those rate offers expire, so there’s going to be another bounce in sales. Crazy times.

  • Franky T 11 months ago

    Problem is that low rates gives everyone a flamethrower. The working class end up ripping each other apart. Higher rates encourage people to save, post a good cash deposit, think twice about expenditures, and eventually brings prices down for everyone, including the wealthy. Also, foreign money doesn’t buy everything, including places which are great for working class people.

Comments are closed.