‘No escaping it’ — interest rates going up

Hamilton’s low unemployment part of positive national growth

Canadian interest rates are expected to continue creeping up throughout 2018 yet still remain “very low” at the end of the year, according to a Royal Bank of Canada senior economist.

Gone are the days of the “ultra low” interest rates, Robert Hogue told the Burlington Chamber of Commerce Thursday morning during an economic forecast.

“There’s no escaping it — the interest rates are going to move up,” because of the economy’s growth, which had been running at about 4 per cent for the first half of 2017, he said.

The Canadian economy was “on fire” in the second half of 2016 and first six months of this year, and Ontario has been a “big part” of that, Hogue noted.

“The Bank of Canada is running out of excuses to keep interest rates very low,” according to the economist.

During his talk, Hogue also touched on other topics and their local impact, including the housing and labour markets and minimum wage.

JOBS

Hogue pointed to Hamilton’s unemployment rate of 4.2 per cent, noting it as the third lowest in the country when it comes to major cities.

Provincewide, Hogue said he expects the labour market to remain below 6 per cent over the next year.

Canada’s labour market has returned to where it was prior to the 2008 recession, said Hogue, noting the “vast majority” of added jobs are full-time positions.

HOUSING

Concerns about a “way too strong” housing market in the spring were curbed by the provincial government’s Fair Housing Plan, Hogue said.

Prices, including in Hamilton and Burlington, are still adjusting after an “overcorrection” between April and July, he said.

“At the end of the day, it made the market more calm,” Hogue said.

While the 2017 calming was driven by a policy decision, Hogue expects the housing market will continue to slow down because of higher interest rates.

The housing market is a “prime candidate” to be affected by rising interest rates, especially given the high debt-to-income ratio in Canada, he said.

A one per cent increase in mortgage rates represents two times the impact on household budgets compared to 15 years ago, Hogue added.

WAGE

Increasing minimum wage to $15 an hour will be a “huge thing” for many businesses, Hogue said.

But the net impact of the boost on the labour market is not clear, he said.

While workers will be making more money, which could increase consumer spending, employers may have to cut hours or jobs, which could cause an increase in the unemployment rate, he added.

“The jury is still out whether this is going to be a positive thing or not,” he said.