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Bank of Canada Concerned by Outlook

Canada May Be Facing a Growth Problem According to Central Bank Governor

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Bank of Canada Governor Stephen Poloz is not only worried about the country’s inflation rate not meeting the desired target, but is increasingly concerned about the country’s sluggish GDP growth. The most recent data released by Statistics Canada missed estimates, casting a gloomy cloud over the outlook as the Central Bank is forced to consider more aggressive monetary policy measures.

Oil Continues to Drop

Crude oil prices continued their global rout, sustaining the downtrend following last week’s report of an additional buildup in US crude stockpiles, fueling worries of a worsening global glut that has already left prices struggling to recover from multi-year lows. Adding to the declines was the latest Baker Hughes figure from Friday which showed the amount of drill rigs for oil and gas in America rising by 17 rigs in the latest week in a sign of growing production in the pipeline. Prices have faced strong headwinds for months, plunging more than 40% since the start of the year. Analysts forecast more of the same in the coming year as major oil producers including OPEC and Russia continue to pump at a breakneck pace in a bid to compete for market share. Brent fell from Friday’s high of $37.53 to $36.17 on Monday, marking the lowest level in 11-years.

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Canadian Inflation Misses Goal

Canada’s inflation rate was the fastest in a year in November according to Statistics Canada which reported a rise in the consumer price index to 1.40% on an annualized basis, up from 1.00% the prior month. The core CPI rate slowed to 2.00% from 2.10%, an unexpected moderation as economists predicted a figure closer to 2.30%. On a monthly basis, headline CPI slipped -0.10% in November and the core rate fell -0.30%, the first such decline since December of 2014. Inflation still remains below the Bank of Canada’s 2.00% target with little evidence to suggest that it will rebound to meet the Central Bank’s objective. While economists believe the current inflation trend is merely transitory, reflecting weaker commodity prices, the nation is experiencing growth problems as evidenced by wholesale sales declining by -0.60% in October, marking the fourth-straight monthly decline.  USDCAD continues to surge, trending near the highest levels since 2004

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US Services in Slowdown

December data highlighted a renewed slowdown in output growth across the US service economy as new business growth appears to be cooling. Markit's US Services PMI came in at 53.7 for December, just as the sector's output reached the lowest level since December of last year, sliding from the previous month’s value of 56.1. While the index remained above the 50 mark, indicating continue expansion, the December reading represents the slowest rate of growth in the services sector in a year. The weak overall reading reflected five straight months of contraction in accumulated orders as well as the slowest growth in new orders since January. Employment was described to be resilient despite the softness in other components of the reading. The services sector, largely insulated from global headwinds, had been growing at a strong pace relative to other areas of the economy.

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New Zealand Optimism Rises

Consumer Sentiment in New Zealand saw a notable improvement in the fourth quarter, recording a value of 110.70, higher than the previous quarter’s reading of 106.00 according to Westpac. Consumers appear to have ignored the softness in the dairy sector, focusing on other areas of the economy and boosting expectations that the holiday season will provide a measurable boost. Low interest rates and cheaper petrol prices has lifted consumer sentiment and the strength of house prices in some parts of the country is adding to the positivity of consumers. The Reserve Bank of New Zealand has opted to slash the official cash rate four times in the last year to reach 2.50% in order to counter the slump in commodity export prices. Household appetite has increased and combined with an improved outlook for 2016 and below trend inflation, low borrowing costs mean attractive conditions for consumers.

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