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Money Talks: Canada’s Paradigm Shift – From Economic Growth to Interest Rates

3 August 2017

It has been an eventful year for the Canadian economy: above average growth, steady job creation and a rate hike from the central bank. Declining home sales in the GTA had an outsized impact on the rest of the country after the Ontario government imposed a tax on foreign buyers.  

This is Money Talks for August 3, 2017.

Don’t look now, but Canada has quietly emerged as the fastest growing G7 nation. The economy expanded 3.7% annually in the first quarter, easily tops among the world’s most advanced nations. The momentum continued into May – the latest month with available data – as the economy grew 4.6% year-over-year. The country’s energy sector posted its biggest annual gain since October 2000, aiding Alberta’s resurgence after the oil collapse.

Canada’s rosier outlook was later confirmed by the International Monetary Fund (IMF), which raised the country’s 2017 growth outlook to 2.5% from 1.9%.

Faster growth has put homebuyers on notice after the Bank of Canada (BOC) raised interest rates for the first time in nearly seven years.

Personal Finance

A stronger economy bodes well for consumers, who have enjoyed seven straight months of job gains. The unemployment rate has also fallen to 6.5%, the lowest since the financial crisis.

But it’s not all good news for consumers. Statistics Canada reported earlier this year that wages are growing at the slowest rate since the agency started collecting the data all the way back in 1997. Canadians also suffer from the highest debt-to-income ratios in the G7, owing $1.67 for every dollar in disposable household income.[1]

Real Estate

Home sales declined in June by the widest margin in seven years, although the losses were overstated by a sharp drop in the Greater Toronto Area (GTA). Canada’s hottest housing market appears to be consolidating after the Ontario government imposed a 15% tax on foreign buyers.

The number of residential homes sold nationwide declined by 6.7% in June after falling 6.2% the month before. Sales are down in each of the last three months, with 70% of local markets reporting a drop. The GTA saw the sharpest drop, followed by the surrounding Greater Golden Horseshoe, lower mainland B.C., Montreal and Quebec City. All data are courtesy of the Canadian Real Estate Association (CREA).[2]


It didn’t take long for some of Canada’s largest banks to charge more for their five-year fixed-rate mortgage loans. The Bank of Montreal and CIBC raised some of their mortgage rates less than a week before the BOC handed down its decision.

BMO hiked its five-year fixed and five-year “smart fixed” mortgage rates by 20 basis points. CIBC also bumped up its fixed mortgage rates by up to 15 basis points.

Earlier in the month, the Royal Bank of Canada and TD also raised mortgage rates, signaling that the era of ultra-loose lending was slowly coming to an end.[3]

Interest Rates

The BOC made headlines in July by raising interest rates for the first time since 2010. Policymakers raised the overnight rate to 0.75% and are widely expected to hike again in October. This means Canada is looking at an overnight rate of 1% by the end of 2017.

The overnight rate, which determines the rate at which banks lend money to one another, has a direct impact on consumer loans such as credit cards and lines of credit. It also influences mortgage rates indirectly as banks pass on the higher costs to their customers.

While rates remain very low by historical standards, even a half-point increase could hit consumers hard. Last year, credit rating agency TransUnion said nearly one million Canadians could struggle to repay their loans even with a one-point increase.[4]


[1] CBC News (June 14, 2017). “Canadians owe $1.67 for every $1 of household disposable income, StatsCan says.”

[2] CREA (July 17, 2017). Canadian home sales drop again in June.

[3] CBC News (July 8, 2017). “BMO, CIBC latest lenders to increase some mortgage rates.”

[4] Pete Evans (September 13, 2016). “Almost a million Canadians couldn’t handle a 1-point interest rate rise, TransUnion says.” CBC.

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