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The Canadian economy slowed in the fourth quarter of 2018, expanding at just a 0.8 per cent annual rate. That was the slowest pace of growth since the second quarter of 2016. Growth was dragged lower by a nearly 3 per cent decline in private investment spending and a slowing of household consumption growth. The impact of the mortgage stress test is being felt across the country as housing investment was down close to 4 per cent. New home construction, renovations, and ownership transfer costs all fell in the fourth quarter.
For all of 2018, the Canadian economy grew 1.8 per cent, a significant deceleration from 3 per cent growth in 2017. The Canadian economy is currently at or very near its full-employment level, meaning that growth will probably continue in a range of 1.5-1.8 per cent in 2019, though with some downside risk due to the mortgage stress test and cuts to Alberta oil production. For those reasons, it is unlikely that the Bank of Canada will raise its overnight rate again this year, though it does still have a bias toward returning its policy rate back to its long-run "neutral" level of 2.5 to 3 per cent.
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