Economists cut Canada growth forecasts on floods, but see rate hikes on track
24/11/2021 17:09
By Julie Gordon
OTTAWA, Nov 24 (Reuters) - Floods that wiped out bridges,
roads and rail lines in British Columbia will hurt Canada's
economic growth and fuel inflation in the fourth quarter, but
the Bank of Canada's rate-hike timing is likely to remain
unchanged, economists said.
"We are trying to wrap our arms around this complex
situation, and waiting to see just how long-lasting some of the
blockages are," said Doug Porter, chief economist at BMO Capital
Market Economics.
Porter halved his fourth quarter growth estimate to 3.0%
from a year earlier. That drags down his full-year growth
forecast to 4.8%, from a previous forecast of 5.0%, because of
the floods and global supply chain disruptions.
"For the Bank of Canada, it's not obvious that the weaker
growth figures will have much impact as they have hit the supply
side and actually threaten to boost inflation even further," he
added.
Economists are clear the flooding will have a material
impact on near-term gross domestic product forecasts, but there
is considerable uncertainty about how fast growth could bounce
back.
It will take time to fully repair the infrastructure needed
to transport goods https://www.reuters.com/markets/commodities/alcohol-auto-parts-canadas-warehouses-fill-up-floods-stop-flow-goods-2021-11-23
across the mountainous Pacific coast province, but key rail
lines are set to reopen this week.
"Quantifying the overall economic impact when the situation
is still in flux is fraught with uncertainty," said Jimmy Jean,
chief economist at Desjardins Group, in a note.
Jean said that 2013 floods in Alberta undermined growth the
month they hit, but then quickly rebounded.
"A rapid economic recovery following natural disasters is
fairly typical," Jean said.
The Bank of Canada last month - before the floods - cut its
growth forecasts and signaled rate hikes https://www.reuters.com/world/americas/bank-canada-signals-it-could-hike-rates-sooner-than-expected-2021-10-27
could start in the "middle quarters" of 2022.
The central bank warned inflation would go higher this year
before easing back to the 2% target in late 2022. Canada's
annual inflation rate hit 4.7% in October https://www.reuters.com/world/americas/canadas-annual-inflation-rate-hits-47-oct-highest-since-feb-2003-2021-11-17,
the seventh straight month above the central bank's 1-3%
control range.
"The inflationary shock will be more of a pressing concern
for (the central bank) and will keep them on track," said Simon
Harvey, senior FX market analyst at Monex Canada.
Money markets BOCWATCH expect the Bank of Canada to start
hiking rates in March 2022 with a total of five increases next
year, but Stephen Brown, senior Canada economist at Capital
Economics, questioned that pace.
"The hit to activity from the devastating floods in B.C.
this week reduces the chance of the Bank becoming more hawkish
any time soon," Brown said in a note.
(Reporting by Julie Gordon in Ottawa; Editing by Steve Scherer
and David Gregorio)
((julie.gordon@thomsonreuters.com; 343-961-4020;))