Unsure what to make of the Canadian economy? Don’t worry, you’re not alone. 

Economists, bankers, politicians, even the venerable Bank of Canada (BoC) can’t agree where we stand at the moment. The BoC is stuck in a holding pattern hoping that the two rate cuts it delivered to the market this year will be enough to create some sustainable economic growth.

Yesterday the BoC decided to keep the Overnight rate as is. The Bank also released a statement discussing the major factors at play in the Canadian economy. Here are some highlights from a statement that really didn’t say much.

1. The low price for our oil is hurting our economy and we really aren’t sure how bad, or how long lasting, the effects will be. Or, in BoC speak:
   • “Canada’s resource sector continues to adjust to lower prices for oil and other commodities, with some spillover to the rest of the economy. These adjustments are complex and are expected to take considerable time.”
2. Canadians are still spending money and as long as the Americans continue to thrive we should be ok. Or, in BoC speak:
   • “Economic activity continues to be underpinned by solid household spending and a firm recovery in the United Sates, with particular strength in the sectors of the U.S. economy that are important for Canadian exports.”
3. For anyone planning a trip south of the border, don’t expect a stronger Canadian Dollar. It is clear the Bank of Canada is extremely happy with the low Loonie.
   • The BoC is hoping the lower dollar will compensate for weakened commodity prices. They do mention that early data confirms that “exchange rate sensitive exports are regaining momentum”.
4. Perhaps most important is what was omitted from the statement. There was no mention of Canadian consumer debt levels or an overheated real estate market.
   • Before the oil plunge dealt us a serious economic blow, the Bank appeared quite worried about these two items. You can expect the media to pick up on the forever increasing level of Canadian debt very soon.

So, how does this miasma of uncertainty affect your mortgage?

If you’re currently in a variable rate, don’t switch to a fixed rate any time soon. Conversely, if you’re in a fixed rate, you’re more than likely to save a significant amount of interest over the next 1-2 years by switching to a variable rate.

Canada is coming off of 2 quarters of negative growth (putting us technically in recession territory) and although Q3 GDP numbers will look better than the previous two quarters we are certainly not out of the woods yet. Moreover, the level of real GDP growth that would actually warrant raising rates is still a distant dream. There are simply too many macroeconomic factors affecting the Canadian economy right now, factors that are entirely beyond our control. Look for interest rate policy and economic growth in both America and China to have a greater influence on the Canadian economy in the coming months than anything the BoC might say or do. Federal elections on either side of the border underscore the general uncertainty.

Variable rate mortgages, a weak Canadian Dollar, and cheaper oil will be the themes of the next 12 months of the Canadian economy.