Canada: Fundamentals suggest a slight moderation in growth - Wells Fargo

Analysts from Wells Fargo, see a stronger CAD over time but they warn about some fundamentals of the Canadian economy like fatigue in consumer spending and elevated household debt. 

Key Quotes: 

“After growing at a particularly quick pace in the first half of 2017, economic growth in Canada slowed to finish the year. For the year as a whole, however, 2017 marked the strongest rate of GDP growth since 2011.”

“However, signs of fatigue in consumer spending and a softer pace of inventory investment present worry for the Canadian economy moving forward. Consumer spending expanded just 2.1 percent in the fourth quarter, the slowest pace of expansion all year. Similarly, while inventories are still building, they do so at a more modest  pace."

“We continue to remain cautious of elevated household debt levels and the run-up in home prices that have occurred alongside the leveraging process over the past several years. Although we acknowledge that the Bank of Canada (BOC) will eventually continue to normalize policy, we recognize that higher interest rates could further hamstring household spending.”

“Similarly, concerns continue to exist relative to uncertainties surrounding the continued renegotiation of NAFTA. With all of this uncertainty considered, although the BOC hiked interest rates in January and inflation remains comfortably within the central bank’s target rage, the BoC has expressed a less hawkish stance toward normalization.”

“We see a stronger Canadian dollar over time, as commodity prices are mildly supportive of the Canadian currency. Fundamentals suggest a slight moderation in economic growth ahead, as we expect the Canadian economy to grow 1.9 percent for full year 2018.”