Economy to rebound by 2010: Bank of Canada
Thu Oct 23, 10:41 AMThe Canadian Press
By The Canadian Press
OTTAWA - The economy is in good shape to weather a global recession, although growth will be anemic for the next six months, the Bank of Canada said Thursday.
In its fall Monetary Policy Report, the bank said Canada's economic growth will be sluggish through the first quarter of next year, but will then start to pick up and will hit 3.4 per cent in 2010. It predicted real economic growth of 0.6 per cent this year and next.
It said lower world demand, lower commodity prices and tight credit will all contribute to sluggish growth.
The weaker Canadian dollar, however, will help, by lowering the cost of the country's exports and making them more attractive to foreign customers.
The report said inflation will stay below two per cent through 2010.
The central bank, which cut its key interest rate by three-quarters of a percentage point this month, says another cut is likely.
The report said the world is entering a "mild recession" and the United States, wracked by the sub-prime mortgage situation, is already in recession.
Canada is not immune, the bank said, but it is bolstered by a strong financial system.
"The weaker outlook for global demand will increase the drag on the Canadian economy coming from exports," the report said. "Lower commodity prices will also dampen the outlook, working though a deterioration in Canada's terms of trade to moderate domestic demand growth.
"The marked tightening in Canadian credit conditions in recent weeks will restrain business and housing investment."
The report predicts a modest decline in housing prices and in household net worth, due to declines in housing equity. Consumer spending will also be lower than earlier predicted, as people adjust to harder times.
Consumers are also going to borrow less, the bank said.
The bank warned, though, that its forecasts are subject to greater uncertainty than usual, as the world grapples with what it called "the deepest, broadest and most persistent financial crisis in decades."
"The bank judges that the risks are roughly balanced around its revised base-case project for inflation in Canada - a base case that now incorporates the recent intensification of the global financial crisis, a mild global recession and the measures that have been taken to resolve the crisis.
"The evolution of the financial crisis, its impact on the global economy and the timing of the effect of the various extraordinary measures being taken to address it post significant risks to the inflation prediction on both the upside and the downside."
In its fall Monetary Policy Report, the bank said Canada's economic growth will be sluggish through the first quarter of next year, but will then start to pick up and will hit 3.4 per cent in 2010. It predicted real economic growth of 0.6 per cent this year and next.
It said lower world demand, lower commodity prices and tight credit will all contribute to sluggish growth.
The weaker Canadian dollar, however, will help, by lowering the cost of the country's exports and making them more attractive to foreign customers.
The report said inflation will stay below two per cent through 2010.
The central bank, which cut its key interest rate by three-quarters of a percentage point this month, says another cut is likely.
The report said the world is entering a "mild recession" and the United States, wracked by the sub-prime mortgage situation, is already in recession.
Canada is not immune, the bank said, but it is bolstered by a strong financial system.
"The weaker outlook for global demand will increase the drag on the Canadian economy coming from exports," the report said. "Lower commodity prices will also dampen the outlook, working though a deterioration in Canada's terms of trade to moderate domestic demand growth.
"The marked tightening in Canadian credit conditions in recent weeks will restrain business and housing investment."
The report predicts a modest decline in housing prices and in household net worth, due to declines in housing equity. Consumer spending will also be lower than earlier predicted, as people adjust to harder times.
Consumers are also going to borrow less, the bank said.
The bank warned, though, that its forecasts are subject to greater uncertainty than usual, as the world grapples with what it called "the deepest, broadest and most persistent financial crisis in decades."
"The bank judges that the risks are roughly balanced around its revised base-case project for inflation in Canada - a base case that now incorporates the recent intensification of the global financial crisis, a mild global recession and the measures that have been taken to resolve the crisis.
"The evolution of the financial crisis, its impact on the global economy and the timing of the effect of the various extraordinary measures being taken to address it post significant risks to the inflation prediction on both the upside and the downside."
