This week Statistics Canada said Canadian GDP declined 0.1 % in April– the fourth consecutive monthly decline. After a 0.6% annualized contraction in Q1, Q2 is settin
g up to be a second quarter of negative growth in Canada (a technical recession), and much weaker than the 1.8% annualized growth that had been forecast by the Bank of Canada. With the loonie already down nearly 8% year to date and 15% over the past 12 months, further weakness is likely as the Bank of Canada cuts its policy rate further, possibly as soon as July 15.
The seeds of a significant Canadian downturn have been sown for many months in a slowing global economy, end of commodity supercycle, overvalued Canadian housing and record household debt. Still sell side optimists had been downplaying the evidence for months even as some contrarian investors have been shorting the Canadian banks and retail sector.
This week, Bank of America Merrill Lynch became the first bank to break consensus ranks and call for a Canadian recession this year. In fact, B of A economists posit that a Canadian recession is already underway and that the loonie will be at .7o/U$ by the start of 2016. See: Canada is already in recession says Bank of America and loonie is set to get hammered.
Unfortunately, as usual, few Canadians or their bullish financial advisers have seen this writing on the wall, and so most are unprepared and unnecessarily exposed to downside.
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