Slowing immigration will bring out the truer picture of Canada’s economy: Royce Mendes

Mortgage renewals at elevated rates have already put Canada in a recession, according to a top economist and strategist at Desjardins who says the country’s immigration boom is masking the problem.

Royce Mendes, managing director and head of macro strategy at Desjardins, said Canadians who renewed their mortgages at much higher rates have already cut down their spending to service their debt.

“Canadians who have been renewing mortgages have already been diverting a lot of income and then spending away from businesses in Canada … now towards debt service,” he told BNN Bloomberg in a television interview on Thursday.

Immigration slowdown could reveal economic picture

That slowdown has been hidden from Canada’s economic data, Mendes contended, as a record number of newcomers have arrived in Canada over the past year.

Mendes said he expects population growth from immigration will slow this year due to a shortage of housing and new federal policies aimed at reducing the pace of immigration.

Ottawa has already begun looking at ways to slow immigration, introducing a two-year cap on international students and slowing its immigration targets.

 

 

Once an immigration slowdown takes hold, Mendes said he expects Canadians will have a truer picture of the economy.

“We won’t have that extra boost to (the gross domestic product) and we’re going to see the cumulative effects of these mortgage renewals start to show up a lot more clearly in the data,” he said.

“As we move forward, we expect that the economy is going to dip into at least a mild recession this year.”

The case for earlier rate cuts

As the economy darkens, Mendes said he’s observed the Bank of Canada “moving towards a more dovish stance.”

Mendes predicted interest rates will begin to come down in April, which is slightly sooner than some economists’ predictions.

“In my view, if they start a little bit earlier, it gives them the opportunity to be more gradual,” he said.

 

 

“I think there are some economists out there who have a later start date for interest rate cuts, but then they might have the Bank of Canada cutting more than 25 basis points at a particular date.”

An earlier rate cut would also offers relief to more Canadians, Mendes argued, because 1.5 per cent of Canadian mortgage holders renew each month, amounting to thousands of people.

“Waiting a few months can mean a big difference for a lot of Canadians,” he said,

“The economy, as I said, is not only facing the challenge for mortgage renewals, (but) population growth, the one driver of economic activity over the past year, is going to be slowing.”

 

This article was reported by BNN Bloomberg