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Canada: Provincial Budgets To Derail Expectations Of A Rate Hike

ByThe National Bank of Canada
Published 01/14/2013, 02:24 AM
Updated 05/14/2017, 06:45 AM
TTEF
0.39%

Canada’s stellar December employment report has led to a significant increase in rate hike expectations in 2013. At this writing, our colleagues in the NBF fixed income derivatives group estimate that the market is pricing an 80% probability that the Bank of Canada will pull the trigger at least once in 2013. As today’s Hot Chart shows, more than 300,000 net new jobs were added in Canada in 2012 (Dec/Dec period). About 44% of this increase was accounted by Quebec which recorded its best job creation year since 2002 (+138,000).

However, and this is important, 75% of the jobs created in the province were in Health & Social services and Education, sectors that were recently earmarked for spending caps in the November budget. What’s more, we would expect other provinces to introduce spending restrictions in their respective incoming budgets.

This could be quite significant for labour markets since public sector jobs accounted for a whopping 48% of total employment created in the rest of Canada in 2012 (public sector normally accounts for 20% of total employment). We expect the upcoming provincial budget season to derail market expectations calling for a rate hike in 2013. Hence our call for CAD depreciation over the next few months.
Provincial budgets to derail expectations of a rate hike

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