Canadian economy and confidence growing despite US jitters

It’s been another shaky few weeks watching the economy as indicators in Canada continue to provide moderately promising news, eyes and ears are still looking south at the stuttering recovery within the US. As Canada’s largest trading partner there is a built-in need for the US economy to start growing again to help Canada with exports and market stability. Simultaneously large swings in the currency exchange have seen the exchange rate between the dollars of the two nations rise and fall by over 3% in recent weeks. However the parity with the US dollar has not yet taken place as many had predicted.

Will RBC raise interest rates once more?

Prime Minister Harper stated this week that ‘although things were well, we’re not quite what where want to be and our focus remains the economy’ whilst also adding comments about the continued concern for a double-dip session in the US. Markets in the US remain volatile and little good news has been forthcoming over the summer about jobless rates or the housing market, whilst Canada continues to replace the jobs lost during the recession and find stability in general.

A new poll by Monster.ca reveals Canadians have more confidence in the economy than a year prior which is in keeping with most baseline indicators being on a positive trend during the preceding 12 months. In fact 57% of those polled feel they have greater/much greater job security today than they did the year previously when the same question resulted in 46% responding the same way. Ontario itself displayed the largest year-over-year increase pertain to this question. In a surprising response on the same poll 82% of Canadians said they would take a pay cut for a better work-life balance. Much like the experts in the government the biggest concern remains the fear of a return to recession. Just under half of those surveyed felt a double-dip recession may be imminent with the remainder being more optimistic.

Despite the continued sputtering economy to the south many analysts are convinced that a third hike in interest rates remains likely despite the continued fears about the US and European markets. RBC assistant chief economist Paul Ferley adds:

“Doubts about the sustainability of the U.S. recovery suggest a downside risk to (Canadian) growth, a factor that could move the bank to the sidelines. At the moment though, it’s an open question whether the faltering U.S. economy trumps indications that the Canadian economy is holding up fairly well.”

Within the banking sector there is a feeling that the historically low rates must increase this month to be fiscally responsive and responsible. Previous increases have not greatly impacted job creation nor consumer spending, while perhaps one of the most encouraging signs is that businesses are now investing again in new equipment, stock and people.