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Free AccessMNI POLICY: Debt, Housing Strengthen Case For Longer BOC Pause
By Yali N'Diaye
OTTAWA (MNI) - The outlook for the Bank of Canada tilted toward an even
longer pause after new home sales released Friday plunged to their lowest point
in over six years.
There was a rare upside surprise when manufacturing data were released
earlier in the morning, but that was quickly overshadowed by the home sales
data. It remains to be seen whether the manufacturing increase will be isolated
or whether growth in the first quarter could rebound more than expected by the
central bank.
Even if the federal government were to announce stimulus measures in its
2019 budget on March 19 - the last budget before the October 21 federal election
- analysts don't expect any material boost to GDP growth.
--WEAKER HOUSING
Canada's existing home sales plummeted 9.1% in February, more than erasing
the 3.6% gain in January, and reaching their lowest level since November 2012,
the Canadian Real Estate Association reported Friday. Sales have been down 4 of
the past 5 months. "The housing sector is on track to further reduce waning
Canadian economic growth," warned CREA Chief Economist Gregory Klump.
The data released Friday came on the back of a 3.9% drop in housing
investment in the fourth quarter 2018, trimming the annualized GDP growth by 1.2
percentage points.
Sales have been down 4 of the past 5 months.
On the price front, CREA's Aggregate Composite MLS Home Price Index edged
down 0.1% year-over-year, the first decline in nearly ten years, driven down by
single-family homes.
Statistics Canada reported Thursday that Canada's new housing prices edged
down 0.1% in January, both month-to-month and year-over-year. The monthly
decrease was the first since February 2018, while the 12-month decline was the
first since December 2009.
Even prior to these housing number, the BOC had stressed in its March 6
statement that, "consumer spending and the housing market were soft, despite
strong growth in employment and labor income."
--RISING DEBT CONCERNS
Earlier this week, Senior Deputy Governor Carolyn Wilkins brought attention
to the rising debt, not just in Canada, but globally.
In fact, "the global development that concerns me the most," she said in a
speech Thursday, "is rising debt."
In Canada, elevated household debt remains the top vulnerability for the
financial system, she reminded.
Earlier Thursday, Statistics Canada reported that household credit market
debt-to-disposable income reached a record high 178.5% in the fourth quarter
2018, during which households borrowed C$21.2 billion. Demand for consumer
credit and non-mortgage loans decreased, while demand for mortgage loans rose
C$2.3 billion.
For the central bank following a risk-management approach, this new debt
number was a setback that further reinforces the need to be careful in
considering any interest rate hike.
The already "increased uncertainty about the timing of future rate
increases" underlined in the March policy statement just got even more
uncertain.
--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com
[TOPICS: M$C$$$,MT$$$$]
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.