The final week of February will see GDP data released for both Canada and the U.S., with results likely confirming slower growth in 2018’s fourth quarter.
Canada’s GDP numbers will be released Friday and aren’t expected to meet central bank expectations.
In a weekly economics report, CIBC calls for fourth-quarter GDP of 0.9% annualized, down from 2.0% in the previous quarter and about one-half percentage point below the central bank’s forecast in its last monetary policy report.
“It was a rough end to the year for Canada’s economy,” the report says, citing tepid growth in various economic indicators, such as household spending.
As a result of expected GDP weakness, the Bank of Canada will sit on the sidelines for at least the first half of the year, the report says.
In its weekly economics report, National Bank calls for fourth quarter GDP of 1.2% annualized, based on positive contributions from residential and business investment, as well as a limited contribution from consumption.
On Wednesday, consumer price index numbers for January will be released, with CIBC and National Bank both calling for annualized headline inflation to dip to 1.3% from 2.0% previously, and the Bank of Canada’s indicator decelerating to 1.8%, below the central bank’s 2% target.
U.S. data and market insights
In the U.S., fourth-quarter GDP data are out on Thursday, with consensus forecasting an annualized growth rate of 2.5%, compared to 3.4% in Q3.
National Bank’s call aligns with consensus, but CIBC calls for 2.1%, saying that higher forecasts haven’t been revised since weak December retail sales were released.
Still, CIBC’s call is slightly above the U.S. economy’s long-run potential, the report says. Further, a solid reading for December household income growth, to be released Friday, could indicate that spending will pick up again and offer support to future growth.
A drop in GDP would be negative for the U.S. dollar and see yields fall, the report says.
Diverging economic viewpoints provide insight to U.S. equities. The CIBC report says forecasters are increasingly concerned about a recession in the next year; at the same time, equity markets have recovered from the year-end selloff and the volatility index has dropped.
“There’s a clear disconnect here,” the report says.
While CIBC doesn’t call for a U.S. recession in the next 12 months, equity markets’ complacency to such a risk means they’ll likely see limited further upside if the risk isn’t realized, the report says.
Other U.S. releases slated for next week are housing starts (December) on Tuesday and manufacturing (February) on Friday.
While warm December temperatures might have provided a small monthly boost to homebuilding, the CIBC report says higher interest rates will act to limit housing demand in 2019, and thus homebuilding.
The Institute for Supply Management manufacturing index could see a drop to 54.8 (from 56.6 in the previous month) consistent with a slowdown in the U.S. economy and higher oil prices, the report says.
Globally, consumer prices (February) and unemployment (January) will be published in the eurozone. In Japan, retail sales, industrial production, housing starts and unemployment will be released, and China’s manufacturing data (February) is also coming.