Interest Rate July

What will be the result of the July 13th Bank of Canada interest rate announcement?
Rate Cut: 6%
Unchanged Rate: 91%
Rate Increase: 3%

After leaving rates unchanged in May, the Bank of Canada is expected to keep rates unchanged in July as well (see article here).  I tend to think a rate change is very unlikely, but a rate cut is more likely than a rate increase, given the fire in Fort McMurray.

Post-Mortem: Business

• The Charter Time Warner Merger has completed.  Last May, I said there was a 30% chance the deal would complete.  At that point, there was still substantial uncertainty over whether the deal would go through.  Still, a 50% estimate (based on market movements) might have been better than a 30% estimate.
• Staples and Office Depot abandoned their merger, after US regulatory opposition (see my post Staples Merger Case).  Last December, I said there was a 75% chance that the merger would be abandoned.
• The LCBO waterfront lands have been sold to Menkes Developments (see my post LCBO Land Sale).  Last December, I said there was a 85% chance a sale would happen before the end of 2016, and a 50% chance of a sale to a company other than Wittington Properties (which was one of the bidders).
• There were no Bank of Canada interest rate changes in April or May (see my posts Canada Interest Rate April and Canada Interest Rate May).  I said there was a 75% chance of no change in April, and a 85% chance of no change in May.  Overall, I think I may have been over-predicting change.

Canada Interest Rate May

What will be the result of the May 25th Bank of Canada interest rate announcement?
Rate Cut: 5%
Unchanged Rate: 85%
Rate Increase: 10%

The Bank of Canada declined to change interest rates at its April meeting (see article here).  The expectation seems to be that the rate will continue to be unchanged for the near future.  If the Bank does change the rate, it seems that a rate hike is more likely than a rate cut (see article here).

Budget Post-Mortem

• The budget was released on March 22 (see my post Federal Budget Timing).  I said there was a 35% chance that it would be released in the week of March 21st, and that week was the one I thought the budget would most likely be released in.
• The federal budget deficit for 2016 is $29.4 billion (see my posts Balanced Budget 2016, Balanced Budget 2016 v2, Federal Budget Deficit, Federal Budget Deficit v2, and Federal Budget Deficit v3).  In my initial prediction last April, I said there was a 35% chance of an unbalanced budget.  During the election campaign, I decreased that to 25%, because of the NDP pledge to run balanced budgets.  After the election, I said there was a 70% chance of a budget deficit larger than $10 billion.  In February, after the fiscal update, I projected a 30% chance of a deficit larger than $25 billion, and a 90% chance of a deficit smaller than $30 billion.  Just before the budget was released, I said there was a 85% chance of a deficit larger than $20 billion, and a 50% chance of a deficit smaller than $30 billion. Overall, I generally underestimated the size of the budget deficit, and I may have under-reacted to news suggesting that the budget deficit would be smaller than expected.
• The Liberals are repealing income-splitting for parents (see my post Income-Splitting Repeal)..  Last April, I said there was a 35% chance that this would happen.
• The budget announced a 1.61% 2017 EI premium rate (see my post EI Premium Rate 2017).  In December, I said there was a 35% chance of a 2017 EI premium rate between 1.6% and 1.7%, and I thought this was the most likely range,

Economic Question Post-Mortem

There are a bunch of economic questions that have resolved in the past few months.

• Canadian GDP Growth in 2015 was 1.2% (see data here).  That fell within my 1% to 2% range, which I gave a 25% chance of.  Overall, I gave a 40% chance of GDP growth being lower than 2%.
• US Economic Growth in 2015 was 2.4% (see data here).  I gave a 22% chance of 2% to 3% growth, and a 55% chance of growth lower than 3%.
• Canadian Inflation in 2015 was 1.6% (see data here).  I said there was a 35% chance of an inflation rate between 1% and 2%, and a 65% chance of an inflation rate below 2%, so this is in line with what I expected.
• In January, the Bank of Canada didn't change the main interest rate (see my posts Canada Interest Rate January and Canada Interest Rate January v2).  I originally said that there was an 85% chance of an unchanged rate, which I later decreased to 47%.  This is one of those unusual cases where my initial prediction was better than my later predictions, and I may have over-reacted to later news.
• The Bank didn't change the interest rate in March either (see my post Canada Interest Rate March).  I said there was a 65% chance of an unchanged rate.

Overall, my economic projections might have overestimated the variance of economic variables; all of the predictions here fell in one of the middle ranges (counting "unchanged rate" as a middle range), which would be expected to happen by chance only 3.6% of the time, if my probabilities were correct.

Federal Budget Deficit 2017

What will be the federal government budget deficit for the 2017-2018 fiscal year, according to the 2017-2018 budget as originally tabled?
Less than $20 billion: 15%
Between $20 and $30 billion: 20%
Between $30 and $40 billion: 30%
More than $40 billion: 35%

The 2016 budget projects a $29 billion budget deficit in 2017 (see link here).   The government's economic estimates seem to be somewhat pessimistic, but they might continue to be so for the actual budget.  In addition, the government might increase spending more than current projections indicate.  I think the deficit is more likely than not to be larger than forecast.

Federal Budget Deficit v3

What will be the federal government budget deficit for the 2016-2017 fiscal year, according to the budget as originally tabled?
Less than $20 billion: 15%
Between $20 and $30 billion: 35%
Between $30 and $40 billion: 30%
More than $40 billion: 20%

Since my last post, expectations for the budget deficit seemed to have increased slightly (see article here).  Some have recommended a deficit as large as $40 billion, and the median now seems to be about $30 billion,  I am increasing my estimate accordingly.

Canada Interest Rate April

What will be the result of the April 13th Bank of Canada interest rate announcement?
Rate Cut: 20%
Unchanged Rate: 75%
Rate Increase: 5%

The Bank of Canada decided to leave rates unchanged on March 9th (see article here).  The most likely outcome in April seems to be that the Bank will leave rates unchanged, but there seems to be some possibility that rates will be lowered, depending on the amount of stimulus spending in the budget.

Federal Budget Deficit v2

What will be the federal government budget deficit for the 2016-2017 fiscal year, according to the budget as originally tabled?
Less than $15 billion: 5%
Between $15 and $20 billion: 15%
Between $20 and $25 billion: 50%
Between $25 and $30 billion: 20%
More than $30 billion: 10%

The federal government is projecting a deficit of $18.4 billion in 2016-2017, before new spending programs are accounted for (see story here).  There is speculation that the deficit could be large as $29 million (see story here).

It seems likely that the deficit will be in the $20 to $25 billion range, given additional spending; that would allow the Liberals to fulfil their promise of reducing the debt-to-GDP ratio.  A larger deficit is possible if the Liberals want to spend more, and a smaller deficit is possible if conditions improve.  A deficit larger than $30 billion seems unlikely, as does a deficit significantly smaller than the most recent projection.

Year-End Post Mortem: Economics

I'm going to go back to the backlog of questions that resolved at the end of the year.  Today, I'll focus on the economics questions.

• The Canadian Dollar was at 72 cents US at the end of the year, which fits in my lowest category of less than 80 cents (see also Canadian Dollar v2).  In my original post in January 2015, I said there was a 25% chance of this low of a value, which I later increased to 50%.  II might have underestimated the variability in the Canadian dollar.
• The Canada Overnight Rate was 0.5% at the end of the year, which fitted into my category of 0.75% or lower (see also Canada Overnight Rate v2).  Before the January rate cut, I said there was a 15% chance of a rate that low, which I later increased to 70%.  Again, I might have initially underestimated the chance of a rate cut.
• The US Federal Funds Rate target range was 0.25% to 0.5% at the end of the year.  I said there was a 25% chance of a rate that low.  Again, I might have overestimated the probability of a significant rate increase.
• The Oil Price at the end of the year was in the $30 to $50 range.  I said that there was a 27% chance of a price in this range, and a 33% chance of a price less than $50.  This was not an obviously inaccurate prediction.
• The Ottawa Gas Price was 91.5 cents/L at the end of 2015, according to the Ontario Ministry of Energy.  I said there was a 25% chance of a price between 90 and 100 cents per litre, and a 45% chance of a price below 100 cents per litre.  Again, this prediction seems to have been reasonable.

Canada Interest Rate March

What will be the result of the March 9th Bank of Canada interest rate announcement?
Rate Cut: 30%
Unchanged Rate: 65%
Rate Increase: 5%

The Bank of Canada decided to leave rates unchanged on January 20th (see article here).  This was expected by about half of analysts.  In March, I still think that the Bank is most likely to keep rates unchanged, but an interest rate cut seems like a real possibility, given that one was half-expected in January.

Canada Interest Rate January v2

What will be the result of the January 20th Bank of Canada interest rate announcement?
Rate Cut: 50%
Unchanged Rate: 47%
Rate Increase: 3%

Since my last post, more recent commentary has suggested that the Bank of Canada is more likely to cut rates than I initially thought.  I am updating my odds.

Canada Interest Rate January

What will be the result of the January 20th Bank of Canada interest rate announcement?
Rate Cut: 12%
Unchanged Rate: 85%
Rate Increase: 3%

There is continuing speculation that rates may be cut (see story here).  However, given the unchanged rates in the last two meetings, I am going to increase my odds of an unchanged rate to 85% (from 80% in my last post).

Canadian Home Prices 2016

What will be the increase in Canadian Home Prices between December 2015 and December 2016 be, according to the MLS Home Price Index (HPI)?
Less than 0%: 15%
0-5%: 40%
5-10%: 30%
More than 10%: 15%
(See the tool here.  The Aggregate (over all cities), Composite (over all property types) number will be used)

According to the MLS HPI, Canadian home prices have increased every year since 2006 except 2008, with an average increase of 5% or so.  The rate of increase has been slightly lower in recent years than before 2008.  For the 9 years 2006-2014, 1 has seen a decrease in house prices, 3 have seen a 0-5% increase, 3 have seen a 5-10% increase, and 2 have seen a 10+% increase.  I think the rate of increase in 2016 is most likely to be in the 0-5% range, but a 5-10% increase is also quite possible.

Federal Budget Deficit

Will the 2016 federal budget deficit be larger than $10 billion?

Yes: 70%

(For the purpose of this question, the initial announced deficit is all that matters)

During the recent federal election campaign, the Liberals promised to run a deficit of no more than $10 billion.  The Liberal government has recently have recently backed away from that promise somewhat (see article here).  Given the current stance of the government, it seems unlikely that the deficit will be less than $10 billion.  Good economic news, or a significant increase in the price of oil, could change this.

Canada Interest Rate December

What will be the result of the December 2nd Bank of Canada interest rate announcement?
Rate Cut: 15%
Unchanged Rate: 80%
Rate Increase: 5%

The next interest rate announcement will take place on December 2nd.  The expectation seems to be that rates will stay the same, or perhaps fall further (see story here).  A rate increase seems to be very unlikely at this point.  I am going with the same odds I used in my October prediction.

Canada Interest Rate October

What will be the result of the October 21st Bank of Canada interest rate announcement?
Rate Cut: 15%
Unchanged Rate: 80%
Rate Increase: 5%

The next interest rate announcement will take place on October 21st.  The expectation seems to be that rates will stay the same (see story here).  According to the article, markets give a 19% chance to a rate cut in October (atlhough this might not be the precise number now).  A rate increase is presumably also possible, especially if the US Fed decides to increase rates.

Canada Interest Rate September

Q196: What will be the result of the September 9th Bank of Canada interest rate announcement?
Rate Cut: 10%
Unchanged Rate: 85%
Rate Increase: 5%

The next Bank of Canada interest rate announcement is scheduled for September 9th.  After the somewhat surprising rate cut this month, the expectation seems to be that the interest rate will remain unchanged for the rest of year (see story here).  A rate increase just after a rate cut seems rather unlikely, while another rate cut would seem excessive but slightly more likely than a rate increase.

Canada Savings Bonds

Q186: Before the end of 2016, will the federal government officially announce that it is planning to end the Canada Savings Bonds program?
Yes: 5%
(A change in the program that substantially reduces its size and scope would also count)

A recent KPMG report recommended ending the Canada Savings Bond (CSB) program, because it is an uneconomic way for the government to raise money (see story here).  The government has indicated it has no plans to end the program, and I can find no evidence that the Liberals or NDP would end it either.  The program has existed since 1946.

Given the great longevity of the CSB program, I think that it is very unlikely that it will end in the next year and a half.  None of the major parties seem to support ending the program, and doing so would probably be politically unpopular.  A similar recommendation in 2004 to end the program was ignored.

Canada Interest Rate July

Q173: What will be the result of the July 15th Bank of Canada interest rate announcement?
Rate Cut: 25%
Unchanged Rate: 65%
Rate Increase: 10%

As with many Bank of Canada interest rate announcements, there has been considerable speculation about the July 15th decision (see article here).  Most economists seem to expect an unchanged rate, although a significant minority (25% or so) expect a cut.  A rate increase is also possible, if unlikely.

My sense is that the rate will probably stay unchanged, but it could also be cut.  An unchanged rate is very much the default option, and I have the sense that some economists might tend to overestimate the chances of an interest rate cut.