The economy isn’t expected to get much better than it is now. In fact the Bank of Canada forecasts it will be weaker than expected given the Alberta wildfires. This is the reason why the key interest rate is being held at 0.5 per cent. The rate is a key factor used by Canada’s big banks in determining their prime lending rate, which is used for variable rate mortgages and lines of credit.
The central bank said growth in the first quarter appears to be in line with its April forecast, although business investment and intentions remained disappointing. But the bank said the second quarter that ends June 30 will be much weaker than predicted because of the wildfires that devastated swaths of Fort McMurray, Alta., forced the evacuation of the city and resulted in the shutdown of several oilsands operations.
“The bank’s preliminary assessment is that the fire-related destruction and the associated halt to oil production will cut 1.25 percentage points off real GDP growth in the second quarter,” the bank said in its statement. “The economy is expected to rebound in the third quarter, as oil production resumes and reconstruction begins.” The bank had predicted growth of 1.0 per cent for the second quarter in its April monetary policy report. It is expected to update its full outlook for the economy and inflation in its next monetary policy report on July 13, when it also makes its next rate announcement.
The Bank of Canada’s announcement comes in the wake of economic data that suggests the economy ended the first quarter on a soft note after starting 2016 on a hot streak. “In Canada, the economy’s structural adjustment to the oil price shock continues, but is proving to be uneven,” the bank said.
What’s the takeaway from this latest announcement? Brace yourself for some hard times. All this proves that Canada has what is called a FIRE economy which is defined as an economy based primarily on the Finance, Insurance, and Real Estate. FIRE economy is any economy based primarily on the Finance, Insurance, and Real Estate sectors. – CINEWS