{"id":348161,"date":"2025-12-16T04:27:11","date_gmt":"2025-12-16T04:27:11","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/348161\/"},"modified":"2025-12-16T04:27:11","modified_gmt":"2025-12-16T04:27:11","slug":"tds-chief-economist-on-why-the-boc-will-stay-on-hold-for-two-years-and-when-a-pivot-in-housing-prices-will-arrive","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/348161\/","title":{"rendered":"TD\u2019s chief economist on why the BoC will stay on hold for two years and when a pivot in housing prices will arrive"},"content":{"rendered":"

Open this photo in gallery:<\/a><\/p>\n

Beata Caranci, Chief Economist and Senior VP at TD Bank Group, poses for a photograph in Toronto Ont., on Tuesday, November 16, 2021. Tijana Martin\/ The Globe and MailTijana Martin\/The Globe and Mail<\/p>\n

Consumer price data Monday released by StatsCanada showed core inflation falling slightly in November. The Bank of Canada\u2019s preferred measures Core CPI-trim and CPI-median came both came in at 2.8 per cent year-over-year, down from 3 per cent each reported last month.<\/p>\n

With inflation nearing the Bank of Canada\u2019s 2 per cent overnight rate target, Toronto-Dominion Bank chief economist Beata Caranci currently sees no need to change to the overnight policy rate. TD\u2019s quarterly economic forecast report published on Dec. 11 noted that, \u201cIf the economy persists on the modest growth path\u2026 we expect the Bank of Canada to hold its overnight rate at 2.25 per cent for the foreseeable future.\u201d <\/p>\n

On Thursday, The Globe and Mail spoke with Ms. Caranci, who discussed her outlook for interest rates, tariffs and three economic issues to watch for 2026. <\/p>\n

You expect the Bank of Canada to hold the overnight lending rate at 2.25 per cent, not just in 2026 but throughout 2027. Why is that? <\/p>\n

We think they are already at their neutral level. 2.25 per cent is the low end of their neutral estimate, and they haven\u2019t been showing much comfort in going below that. It\u2019s a comfortable number to stay at if you\u2019re able to keep inflation around 2, 2.5 per cent.<\/p>\n

I would think that if the economy is going to improve in 2027, you wouldn\u2019t have to be at the lower end of that neutral range and be so accommodative. What are your real GDP forecasts then? <\/p>\n

In 2026, our forecast is only for 1.3 per cent growth so there will be slack building and then you need time for that to be absorbed. You have slack building in 2026. You\u2019re absorbing that but not eliminating it in 2027. So, I think that it\u2019s reasonable that you can remain around 2.25 per cent. And if the economy deteriorates even more, you have room to move lower.<\/p>\n

What\u2019s your real GDP forecast for 2027? <\/p>\n

1.7 per cent. <\/p>\n

2025 is nearing an end, and we still do not have a trade deal. Can the resiliency in the economy continue, especially without a trade deal and business leaders and consumers cautious to spend? <\/p>\n

So, we have resiliency, meaning slightly over 1 per cent growth. It\u2019s not a booming economy. It\u2019s still an economy reflective that it has a lot of headwinds that is restraining it, so it\u2019s resilient but restrained.<\/p>\n

Given that we still don\u2019t have a trade deal with the U.S. is the worst yet to come? <\/p>\n

There is a lot hinging on what happens with CUSMA because one of the reasons that the economy has been resilient is that a lot of businesses qualify for tariff exemption under CUSMA, roughly 90 to 95 per cent of exporters. So, if that were to go away, then we enter into a new phase of hardship that has shielded those businesses. It really does hinge on policy discussions that they\u2019re going to have next year.<\/p>\n

At the same time, we have seen a lot of trade reorientation. Canadian firms have recovered nearly $11 billion of the $18.5 billion loss to the United States with increased shipments to about 27 other countries. Time has afforded businesses an opportunity to rethink and mobilize into new markets, and have policies come into place that will help them. So, you just have to see how it plays out. <\/p>\n

In our forecast, we\u2019re assuming nothing changes, we assume it\u2019s status quo. So, if CUSMA disintegrates and you get significantly higher tariffs for all those businesses, we would have a significant downgrade to our forecast. <\/p>\n

Will Canadian consumers be hit by higher prices for goods in early 2026? <\/p>\n

The short answer is no. But if they\u2019re going to get hit by higher prices, you have to see what happens with those trade deals.<\/p>\n

As you noted, the health of the Canadian economy is dependent on a new CUSMA deal. What are your expectations for negotiations? <\/p>\n

It\u2019s hard to say. We are reading that the U.S. would prefer to do bilateral negotiations. So, we\u2019ll have to see how that plays out. <\/p>\n

I think the objective is first to get those Section 232 tariffs down. Those are those ones that are at 50 per cent for steel, aluminum and copper, so it\u2019s not just negotiating CUSMA.<\/p>\n

Carney has to press on a couple of channels. He\u2019s got to address the Section 232 tariffs. We talked about Canada being resilient, but if you\u2019re in those industries, you\u2019re getting a gut punch. And then he\u2019s got to make sure to hold in place the tariff-free zones for the majority of other businesses, so he\u2019s got two streams to press on. <\/p>\n

When we spoke in May<\/a>, you anticipated a new CUSMA deal might be reached that would see an average tariff rate of 2.5 per cent for Canadian exporters. Is that still your expectation? <\/p>\n

I don\u2019t even want to hazard a guess on what that is going to look like anymore. In our base case, we\u2019re just assuming the status quo until we start to get some line of sight of how the discussions are going to go. <\/p>\n

I think there\u2019s a bigger issue than just the tariff rates. I think the bigger issue is the longevity of the deal because what we saw when Trump negotiated with China is that they have a deal only in place for one year and then they have to review and renew. CUSMA was in place for six years so if you shorten the time period for review that doesn\u2019t help with business uncertainty. If you have to go under review every two to three years, then you\u2019re always in a state of uncertainty, and that alone would undermine new business investment. So, the duration of the deal matters as much as what you get on the tariffs. <\/p>\n

We\u2019ve seen very strong data in the Canadian labour market with the economy adding over 180,000 jobs between September and November. In the near term is your call for job creation or job losses?<\/p>\n

In the near term, we think we could see flat to down jobs. Although it\u2019s been incredible the last three months, it is not quite consistent with what we\u2019re seeing in consumer spending patterns and business investment. The domestic economy was weak in the third quarter so it doesn\u2019t argue that you\u2019re going to get this robustness in the job market continuing. <\/p>\n

Real GDP growth was 2.6 per cent, but that was not related to domestic demand, which is where jobs primarily drive through from. So, final domestic demand [FDD] is consumer spending, business investment, government expenditures. It takes off inventories and net trade, and that actually contracted, which tells you that all of the pop in GDP was due to trade and a drop in imports. It\u2019s not telling us that the pace of job growth is sustainable based on how FDD is unfolding.<\/p>\n

It\u2019s possible that some of the active hiring we\u2019ve seen in the last three months reflects the economy\u2019s resilience, so companies that hit the pause button on hiring are now at a point where they can revisit those decisions. So, it may be a temporary phenomenon. And I would put my money more on that argument rather than what we\u2019ve seen in the past three months, with job growth 10 times more than even what the Bank of Canada estimates as a sustainable pace. They only think you need to have about 5,000 jobs a month to maintain a stable unemployment rate, and we\u2019re getting significantly above what you\u2019d expect with an economy that had flat domestic demand in the third quarter and will grow less than 2 per cent this year, so it just doesn\u2019t fit together.<\/p>\n

I think that we\u2019re probably more likely to see some job losses or very little creation in the first quarter and potentially very little job creation in the second. <\/p>\n

What are your thoughts on the trade data for September that was just released? <\/p>\n

Trade data was really good for Canada. Exports did much better than many had expected. As time goes on, it gives businesses the opportunity to find and build out markets that are non-American. So, that\u2019s exactly what the trade data showed. <\/p>\n

Exports, excluding volatile gold, year-to-date relative to the same period last year, are down $18.5 billion to the U.S. Although there\u2019s been success in shipping more products to the rest of the world to offset the loss to the U.S., the important point is those Section 232 tariffs makes a difference on the industries that win and lose. Industries that are more oriented to the U.S. and get trapped by 232 tariffs are deep in the red for exports. If you weren\u2019t oriented to the U.S., you\u2019re actually benefiting. <\/p>\n

What are the implications for corporate earnings? <\/p>\n

This is exactly the situation that rewards diversified strategies, when you have different markets, because you\u2019re not solely dependent on what\u2019s happening in the U.S. <\/p>\n

So, of that $14.6 billion to the rest of the world, one quarter of that is energy exports. Then you have metals and ore, so the resources. Consumer goods are up 8 per cent relative to last year. Electronics are up 3.5 per cent.<\/p>\n

To me, that\u2019s the positive story of Canada that probably is not getting amplified in the media because everybody\u2019s so focused on the hardship and the pain, but there are industries that seem to be making the shift to other markets. <\/p>\n

Let me shift over Canadian housing market. We have seen home sales improve in the second half of this year. What is your forecast for Canadian average home prices? <\/p>\n

For next year, we have home prices rising 4 per cent and a little bit of an acceleration to about 4.5 per cent in 2027, but that doesn\u2019t speak to the condo market. That\u2019s just the average. <\/p>\n

How much more downside do you see for condo prices in the Greater Toronto Area and the Greater Vancouver Area, which have been under pressure? <\/p>\n

I think Toronto is the worst of those two. And for Toronto we\u2019re not really anticipating a turn in the prices of that market until about the second half of 2026, and that\u2019s because it\u2019s got to work off much more of its inventory. <\/p>\n

But the dynamics are there, sales are up relative to last year, so you are seeing a recovery in condo sales but they\u2019re coming off a very low level, and condo prices in Toronto are back to 2019 levels. It is more affordable today than it would have been any time since 2019, and that\u2019s why you\u2019re getting some recovery in sales. <\/p>\n

And you\u2019re also getting builders who stopped a lot of projects, so when you get into 2027 and 2028, projects that were stalled this year and last year will tighten up supply. <\/p>\n

At some point in 2026, towards the second half of the year into 2027, I think we\u2019ll be at a pivot point, not a strong one, but the bottom will have been reached. <\/p>\n

So how much more downside might there be until that bottom is reached?<\/p>\n

For the GTA, our condo price forecast reflects a decline of 7 per cent for 2025, and a decline of 1.5 per cent in the first half of 2026, after which it slowly starts to crawl out of the hole. <\/p>\n

A report published by TD Economics on Nov. 25 suggested that \u201cbolder steps are needed to carve out a new competitive global position\u201d adding, \u201cwhile the budget tilts the competitive landscape in the right direction, it doesn\u2019t do enough to kickstart transformational change.\u201d So, what policies or bolder steps are needed to improve the Canadian economy?<\/p>\n

The way I break down how I\u2019m thinking about the evolution of Canada\u2019s policies is the budget was your first step. The budget, and everything leading up to the budget that Carney did, was really about how do we facilitate businesses by removing some of the regulations that are out there on development and interprovincial trade and all of those factors, which is an easy thing to do and doesn\u2019t cost you a lot. <\/p>\n

The next step is prioritizing certain sectors, then legislating Productivity Super-Deduction, basically the capital cost allowance, and increasing the limit on SR&ED [Scientific Research and Experimental Development Tax Credit] that you can claim, so they did this in sectors like infrastructure, mining, critical minerals and others to provide a better business climate.<\/p>\n

But they only turned to policies that they\u2019ve effectively had in the past. They didn\u2019t reinvent the wheel with this budget. For example, Productivity Super-Deduction, basically the capital cost allowance, that\u2019s not a new policy. It was a policy we already had, which expired, and now they are reinstating it. <\/p>\n

Same with SR&ED, it\u2019s an existing program, they just increased the amount that you can apply for tax credits. <\/p>\n

So, we\u2019ve looked at existing policies and made improvements. <\/p>\n

If you\u2019re going to be bold and transformative, what new things do you have to do? <\/p>\n

Sticking on the business side, the first thing I would say is to do a proper comprehensive change or review of corporate tax structures. And an example that we\u2019ve pointed to in our reports is that there is a big shift in business taxes when they go from being small businesses, which is taxable income of $500 million or less, to larger-sized businesses. The tax rate literally doubles as you grow into the billions, so we punish growth. So, what happens is a lot of businesses cluster around the $500,000 taxable income mark because it\u2019s got the lowest tax rate. This is a well-known issue and economists have been pointing it out for a long time. It just never gets addressed, but it\u2019s really important that it gets addressed because this is what we\u2019re missing in the Canadian economy. We don\u2019t have the business dynamism that they have in the U.S. You want to encourage businesses to take risks. You want to encourage them to adopt new technology, innovate and expand, but you also don\u2019t want them to be limited and feel like they have to stay at a certain mark. So, that\u2019s one example.<\/p>\n

The other example, what\u2019s being talked about by economist Jack Mintz and others, is when companies reinvest their income, why are you taxing it? Don\u2019t tax it if they\u2019re putting it back into their growth and putting it into their investment. <\/p>\n

The government has got to take a hard look at all the other things that are obstructive, and that\u2019s what I mean by being bold. You can\u2019t go back to the old playbook. You have to start coming up with ideas that truly make you more competitive. We are not more competitive than the U.S. on these policies. So, if you look at the capital cost allowance, that Productivity Super-Deduction, it expires in 2030 in Canada. In the U.S., the changes they made do not expire at all. It\u2019s forever, and it\u2019s broader. More industries can take advantage of it than they can in Canada. So, we\u2019re not on the same playing field as them. <\/p>\n

On the household level are there any bolder steps that they could have made? <\/p>\n

That to me feels like stage three. Stage one was tinker around with existing policies and deregulation. Stage two is, I hope, really go at it on the corporate side of competitiveness. Stage three, I would hope would be taking a look at the household sector. <\/p>\n

In Canada, you\u2019re not going to attract high net worth with households giving more than half of their income up to taxes. You\u2019re not going to attract entrepreneurs at the same rate as what you might see in the U.S. And as much as people say, let\u2019s look at Europe, our main competitor is the U.S. We share the border with them. When people leave, they predominantly go to the U.S.<\/p>\n

What would you identify as a key risk to the economy in 2026? <\/p>\n

The key near-term risk is probably going to be CUSMA for Canada, the negotiations there and if it injects more certainty or does the opposite, makes it worse for businesses who are now covered under CUSMA. <\/p>\n

Lastly, what would you identify as the big three areas of focus in 2026 for Canada? <\/p>\n

Obviously, CUSMA. Number two, getting those nation-building projects off the ground. So, take them from being on paper to something that\u2019s in production. Not all of them, obviously. Some of them require very long lead times. But investors need to see some getting off the ground to build confidence. Third, don\u2019t stop doing what you\u2019re already doing. Like we\u2019re already seeing businesses rotate to other markets, and one thing that Carney\u2019s done really well is he\u2019s almost acting, not so much as a prime minister as we\u2019ve seen historically, but as a CEO of Canada, more business-minded. He\u2019s really pounding the pavement in drumming up business for Canada to open up access to other markets. In November, he was in Abu Dhabi and he established a Memorandum of Understanding with the United Arab Emirates \u2013 The Canada-UAE Foreign Investment Promotion and Protection Agreement called FIPA. And then he was in India trying to improve relationships there. The government was also looking at aircraft purchases from Sweden\u2019s Saab. He\u2019s really widened the net in getting Canadian companies to think about all markets. That\u2019s why I say like he\u2019s acting more like a CEO, trying to build out a more diversified portfolio for Canada, strategically reposition and create more opportunities.<\/p>\n","protected":false},"excerpt":{"rendered":"Open this photo in gallery: Beata Caranci, Chief Economist and Senior VP at TD Bank Group, poses for…\n","protected":false},"author":2,"featured_media":348162,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[901,888,902,879,877,903,45,49,48,876,895,896,891,878,875,46,549,295,894,887,914,880,881,893,889,890,884,904,885,909,910,912,907,911,905,908,882,898,899,714,897,906,865,61,900,892,886,883,913],"class_list":["post-348161","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-alberta","tag-arts-news","tag-bc","tag-breaking-news","tag-breaking-news-video","tag-british-columbia","tag-business","tag-ca","tag-canada","tag-canada-news","tag-canada-sports","tag-canada-sports-news","tag-canada-trafficcanada-weather","tag-canadian-breaking-news","tag-canadian-news","tag-economy","tag-education","tag-environment","tag-federal-government","tag-foreign-news","tag-globe-and-mail","tag-globe-and-mail-breaking-news","tag-globe-and-mail-canada-news","tag-government","tag-life-news","tag-lifestyle","tag-local-news","tag-manitoba","tag-national-news","tag-new-brunswick","tag-newfoundland-and-labrador","tag-northwest-territories","tag-nova-scotia","tag-nunavut","tag-ontario","tag-pei","tag-photos","tag-political-news","tag-political-opinion","tag-politics","tag-politics-news","tag-quebec","tag-sports-news","tag-technology","tag-travel","tag-trudeau","tag-us-news","tag-world-news","tag-yukon"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/348161","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=348161"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/348161\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/348162"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=348161"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=348161"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=348161"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}