Canada's economy is exhibiting signs of a slowdown, fueled by higher interest rates, raising speculation about the Bank of Canada's next rate decision. Economists predict the bank might maintain a 5 percent rate, as lower-than-expected September inflation figures and decreased retail sales suggest an economic cool-down.
Stephen Brown from Capital Economics raised concerns about a potential 5 percent decline in home prices over the next six months. An influx of new listings and cautious buyers could weaken GDP growth and reduce core inflation pressures. The higher savings rate among Canadians indicates that the interest rates are working as intended, leading to increased savings due to higher rewards amid raised rates.
This trend could be influenced by mortgage renewals, as Canadians prepare for higher costs or fail to qualify for additional borrowing. The decision to hold rates is not certain according to economists from National Bank. While September's inflation figures were softer, the inflation profile remains higher than what the Bank of Canada would prefer due to strong reports in August and July.
The Bank is left with no leeway to downplay its threat of further rate hikes despite clear signs of demand deterioration. Retail sales numbers reveal a significant reduction in consumer spending due to higher interest rates. There has been a 5.7 percent annualized sales decline when considering Canada's growing population, marking the worst pullback since the first pandemic lockdown.
InvestingPro data shows a market cap of 70.8M USD and a negative P/E ratio of -2.36, implying the company is not profitable. Revenue growth has been robust at 65.16% but has slowed down recently, as indicated by quarterly revenue growth of -86.25% for FY2023.Q2. The company's gross profit margin stands at 26.7%, which might be a cause for concern as it suggests weak gross profit margins.
Moreover, the company's stock price has fallen significantly over the last three months, trading near its 52-week low, as per InvestingPro data. The company's price-to-book ratio of 17.79 suggests that the stockholders receive high returns on book equity. Yet, the negative operating income, adjusted to -5.41M USD, and the EBITDA growth of -401.98% suggest the company is quickly burning through cash.
InvestingPro Tips indicates that analysts have revised their earnings downwards for the upcoming period, hinting at a potential slowdown in the company's financial performance. Despite this, the company has maintained its dividend payments for an impressive 45 consecutive years, demonstrating a commitment to return capital to shareholders.
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