BoC market participants survey reveals growth trends, outlook for cuts

Survey Forecasts Rate Cuts, GDP Growth, and Inflation Trends

BoC market participants survey reveals growth trends, outlook for cuts

In the fourth quarter of 2023, the Market Participants Survey revealed insights into Canada's economic outlook and the anticipated direction of the Bank of Canada's policy interest rate.

Around 30 financial market participants forecasted a rate cut in April, with expectations for a decrease to a full percentage point below its current 5 percent by year-end.

Projections for real GDP growth in Canada, as highlighted by The Wall Street Journal, indicate median responses of 0.8 percent for the end of 2024 and 2.2 percent for 2025. The survey also revealed a cautious near-term outlook, with 22.9 percent of participants foreseeing growth falling below 0.00 percent by the end of 2024.

Respondents identified looser monetary policy, a stronger housing market, eased financial conditions, and larger-than-expected fiscal stimulus as the top upside risks to growth. Conversely, a weaker housing market, tightened financial conditions, and lower commodity prices were seen as primary downside risks.

The survey found that 51.9 percent of respondents see no output gap, while 37.0 percent view the current GDP as below potential, indicating a negative output gap. The likelihood of Canada entering a recession in the next 0 to 6 months was pegged at 48 percent, with lower probabilities for longer timeframes.

For inflation, participants expect a median annual total CPI inflation of 2.3 percent by the end of 2024, with a slight reduction in the following years. The Bank of Canada’s policy interest rate is anticipated to decrease gradually from 5 percent beginning in April, with risks to the forecast viewed as equally skewed towards lower paths or being balanced.

The survey also provided estimates for financial assets, including Canadian bond yields across different maturities, the price of West Texas Intermediate oil, and the Canadian dollar's exchange rate against the US dollar for the end of 2024 and 2025.