21 Jul

IMF Says Brexit Will Drag Down World Economic Growth


Posted by: John Dunford

WASHINGTON – Britain’s decision to leave the European Union will reduce global economic growth this year and next, the International Monetary Fund says.

The IMF said Tuesday that it is shaving its estimate for worldwide growth to 3.1 per cent this year and 3.4 per cent in 2017. Both estimates are 0.1 percentage points lower than the bank’s previous forecast in April.

IMF chief economist Maurice Obstfeld said the bank was prepared as of June 22 – the day before Britain’s vote – to slightly mark up its global forecast, citing unexpectedly strong growth in Europe and Japan and a partial rebound in global commodity prices. “But Brexit has thrown a spanner in the works,” Obstfeld said.

Britain must now renegotiate its trade relationship with Europe, creating uncertainty that could erode consumer and business confidence and freeze investment.

For Canada, the IMF shaved a tenth of a percentage point off its expectations for economic growth this year, marking down its prediction to 1.4 per cent.

But the think tank increased its forecast for Canada next year by two-tenths of a percentage point to 2.1 per cent.

The world’s two biggest economies – the United States and China – are unlikely to sustain much damage from the tumult in Europe, the IMF said.

The IMF earlier downgraded its forecast for U.S. growth this year to 2.2 per cent after the American economy got off to a slow start this year, partly because a strong dollar pinched exports.

The fund has raised its forecast for Chinese growth this year to 6.6 per cent from an April forecast of 6.5 per cent. The improvement reflects economic stimulus from five interest rate cuts last year and an increase in government spending on infrastructure.

Sub-Saharan Africa continues to struggle with the fallout from last year’s free fall in commodity prices. The Nigerian economy is expected to shrink 1.8 per cent, a dramatic turnaround from the IMF’s April forecast for 2.3 per cent growth. The South African economy is forecast to eke out 0.1 per cent growth.

20 Jul

Rates could go even lower – this is what brokers need to know


Posted by: John Dunford

The Bank of Canada won’t let sky-high housing prices deter it from cutting rates – what would that mean for key real estate markets? One former banker and current broker weighs in.

“From a Vancouver perspective, I don’t know that that would make a huge difference,” Ric Wilson, a broker with Mortgage Architects in Vancouver, told MortgageBrokerNews.ca. “They’re already at record lows; another $10 dollars a month per $100,000 [in mortgage cost] won’t change things very much.”

Further rate cuts could be nigh – despite ever-boiling real estate prices in two Canadian markets and the fact that the current overnight rate target sits at 0.5%.

“I don’t think of it as something that blocks us from changing interest rates,” Poloz recently told the Washington Post when asked whether exposures related to housing would deter the Central Bank from future interest rate cuts.

That may surprise some brokers, as record-low interest rates are often cited as a driving factor behind the historically hot housing prices in Toronto and Vancouver.

The Bank of Canada’s target rate was slashed to 0.5% in July of last year, and it currently sits at that mark. That’s the lowest it’s been since the great recession, when it was cut to 0.25%.

But it could go even lower.

“My past life is as an VP at a bank. I think the Western world is stuck in the need for heavy deleveraging and as much as central bankers talk a big game … I think we’re almost in a Japan-like cycle of decades of low interst rates to accommodate debt servicing,” Wilson said. “I can’t guarantee it, but I can’t see the room to raise interest rates without causing major economic calamity. So bankers talk a good game because it’s prudent.”