The Bank of Canada recently forecast that the portion of residential real estate investment in the Canadian economy will actually go negative this year, suggesting that strict mortgage regulations, local housing restrictions, and the upward trend in interest rates have made a more dramatic impact than anticipated.
The bank has revised housing investment’s contribution to average annual real economic growth down to -0.1% in 2019, from the +0.1% during the BoC’s prior projections last October.
“Staff analysis suggests that the combined effect of tighter mortgage guidelines and higher interest rates has been larger than previously estimated,” the BOC noted in a statement earlier this month, as quoted by Business in Vancouver.
This is exacerbated by the fact that consumer spending and housing investment “have been weaker than expected” as housing markets nationwide are still in the process of adjusting “to municipal and provincial measures, changes to mortgage guidelines and higher interest rates,” the central bank added.
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The statement echoed market observer David Doyle’s warning late last week. The Macquarie Group Canadian market strategist and NA economist cautioned that the housing sector’s enduring affordability issues, along with other economic risks, would likely make themselves felt in the country’s long-term GDP growth.
“Canada’s economy, we think, is at this critical juncture, and it’s confronting several headwinds – that includes challenged demographics, low productivity, structural imbalances like the housing situation and our trade deficit,” Doyle said in an interview with BNN Bloomberg. “And we see a real absence of growth drivers.”
Late last year, BoC governor Stephen Poloz assured that 2019 will not represent a downward spiral towards recession as “fundamentals are good.”
“We’re certainly not expecting a recession in 2019 but I do think that everybody needs to be prepared for volatility,” Poloz said in an interview with CTV News.
“We are in a volatile world and so there are risks ... but I think the Canadian economy begins this new year in a pretty good place.”