The great economist, Maynard Keynes, was once asked why he changed his investment strategy so quickly. He is reputed to have answered “when the facts change, I change my mind. What do you do, sir? “It appears that the economists at the Bank of Canada are not familiar with this quote.

This morning the Bank of Canada announced its policy rate decision. As expected, it kept the overnight bank at 1.75%, yet it gave every indication that the facts have indeed changed. Here are some the important considerations raised by the Bank in its press announcement:

• Near term, growth is very weak and the output gap has widened. The bank expects growth in the last quarter of 2019 to register just 0.3%. Moreover, the Bank has lowered its forecasts for 2020 to 1.3%;  the weaker data appears “ that global economic conditions are now affecting the Canadian economy to a great extent than predicted” 
• More importantly, the Bank concedes that its original expectation that business investment and exports would lead the charge to better economic performance was misplaced; exports fell last quarter and the weakness in business investment continues to befuddle the bank economists who have serially missed the mark on this very important component of national output.
• The supposed Canadian job machine is sputtering and with that consumer confidence is softening.
• The only bright spot is that residential investment remains solid, largely in response to high levels of immigration and the tightness in existing housing supply.

The bank cites that consumers are saving more and that this might have contributed to the slowdown in growth. Ironically, it is the Bank of Canada that has been at the forefront of the campaign to reduce household debt by instituting stricter mortgage rules and cautioning the commercial banks on providing too much consumer credit. So, when consumers start to save the consequences are a slowdown in growth. Frankly, the Bank offers up set of lame excuses of why the economy slipped, including bad weather (isn’t that what winter is all about), very short-lived strikes and inventory adjustments. The mismatching of inventories to sales is one of the early signs of a recession in the making.

The Bank then shifts to the future and anticipates that these disappointments will disappear in the coming months as exports, consumption, and business investment are suppose to pick up. No clue is given why this will happen, just hope.

Indeed, the facts have changed.