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Economists cut growth forecasts on B.C. floods, but see rate hikes on track


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‘Quantifying the general financial affect when the scenario continues to be in flux is fraught with uncertainty’

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The entrance to a blueberry farm is blocked by rising flood waters on Nov. 18, 2021 in Abbotsford, B.C. The entrance to a blueberry farm is blocked by rising flood waters on Nov. 18, 2021 in Abbotsford, B.C. Photo by Rich Lam/Getty Images recordsdata

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OTTAWA — Floods that worn out bridges, roads and rail traces in British Columbia will harm Canada’s financial growth and gas inflation within the fourth quarter, but the Bank of Canada’s rate-hike timing is more likely to stay unchanged, economists stated.

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“We are trying to wrap our arms around this complex situation, and waiting to see just how long-lasting some of the blockages are,” stated Doug Porter, chief economist at BMO Capital Market Economics.

Porter halved his fourth quarter growth estimate to three.0 per cent from a yr earlier. That drags down his full-year growth forecast to 4.8 per cent, from a earlier forecast of 5.0 per cent, due to the floods and world provide chain disruptions.

“For the Bank of Canada, it’s not obvious that the weaker growth figures will have much impact as they have hit the supply side and actually threaten to boost inflation even further,” he added.

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Economists are clear the flooding can have a cloth affect on near-term gross home product forecasts, but there’s appreciable uncertainty about how briskly growth may bounce again.

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It will take time to completely restore the infrastructure wanted to move items throughout the mountainous Pacific coast province, but key rail traces are set to reopen this week.

“Quantifying the overall economic impact when the situation is still in flux is fraught with uncertainty,” stated Jimmy Jean, chief economist at Desjardins Group, in a word.

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Jean stated that 2013 floods in Alberta undermined growth the month they hit, but then shortly rebounded.

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  • “A rapid economic recovery following natural disasters is fairly typical,” Jean stated.

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    The Bank of Canada final month – earlier than the floods – cut its growth forecasts and signalled rate hikes may begin within the “middle quarters” of 2022.

    The central financial institution warned inflation would go larger this yr earlier than easing again to the 2 per cent goal in late 2022. Canada’s annual inflation rate hit 4.7 per cent in October, the seventh straight month above the central financial institution’s 1-3 per cent management vary. “The inflationary shock will be more of a pressing concern for (the central bank) and will keep them on track,” stated Simon Harvey, senior FX market analyst at Monex Canada.

    Money markets anticipate the Bank of Canada to begin climbing charges in March 2022 with a complete of 5 will increase subsequent yr, but Stephen Brown, senior Canada economist at Capital Economics, questioned that tempo.

    “The hit to activity from the devastating floods in B.C. this week reduces the chance of the Bank becoming more hawkish any time soon,” Brown stated in a word.

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