The Canadian economy has held up well so far but the outlook is gloomier, says BCA Research.

In a research note, BCA says that the Canadian economy shown impressive resilience to the U.S. slowdown so far, as high commodity prices have provided a buffer. It notes that Canada added 15,000 jobs in March, in stark contrast with shrinking payrolls in the U.S. Also, retail sales growth is still sturdy and GDP rebounded smartly in January.

“However, the outlook is much less upbeat, given that U.S. consumer spending is weak and the U.S. economy is slipping into recession,” it says. “The Canadian leading economic indicator also points to a significant downshift in growth ahead.”

The Bank of Canada has highlighted the risks to the outlook and has a bias to ease policy, BCA notes. “Inflation is certainly not a problem; even inflation in the food component of the CPI has fallen to zero!”

“We have highlighted that the fundamentals are favorable for the domestic bond market. However, Canadian bonds have already enjoyed a significant bout of outperformance and rate cut expectations are aggressive,” BCA concludes, advising that global bond investors should have no more than a benchmark weighting in Canada.