There’s good news and bad about the latest economic outlook

Posted on 23. Apr, 2010 by in News

Canada is leading the other G7 countries out of recession with the fastest growth in a decade, but it will be trailing those countries in a few years, the Bank of Canada said Thursday.

The central bank’s latest economic outlook released Thursday makes several bold predictions, including that Canada’s fast start out of last year’s slump is already slowing, that the housing boom is fizzling out, and that the country’s long-term growth prospects are discouraging.

And governor Mark Carney is cautioning markets not to be so sure Canada’s central bank will raise its key interest rates in a matter of weeks.

On Tuesday, the Canadian dollar shot up more than 1.5 cents to above parity with the U.S. currency after the Bank of Canada said it was dropping its promise not to raise rates before July at the earliest.

But Carney told a news conference Thursday that there is still considerable risk in the global economy, or to anticipating his next move.

“There is nothing pre-ordained from this day forward,” Carney said to a question on interest rates.

Most economists interpreted Tuesday’s statement as an alert to plan for higher rates in June, but some argued Carney had left himself plenty of wiggle room.

“The Bank of Canada has limited scope to raise interest rates in the next several months,” said Brian Bethune, chief economist with IHS Global Insight.

“While we may see one or two token moves to raise the overnight rate by a quarter of a point in the June to October window, action to raise rates will be very limited” by the fact doing so would further boost an already strong dollar.

In Thursday’s report, the bank said it is planning for the dollar to hover around parity for the next three years and listed it as a major impediment to strong growth because it will make exports less competitive in global markets.

The report says Canada’s economy expanded by 5.8 per cent in the just past quarter, the largest advance since 1999, but growth will likely slow to 3.8 per cent in the April-June period, and to 3.5 per cent the rest of the year.

It gets worse. Economic growth will average 3.1 per cent in 2011 and 1.9 per cent in 2012, about half what it will be in the United States and lower than both Europe and Japan.

“There is some good news here, our economy has returned to growth,” said Carney, noting that more Canadians will find jobs and those who have had their hours reduced are more likely to be called in to work longer.

But as he has in the past, Carney warned that the longer-term prospects for the Canadian economy is modest unless the corporate sector starts investing heavily in new machinery and equipment to become more productive.

Canada is also facing a bigger issue of an aging workforce than the United States, exacerbating the divergent trend line between the two economies.

“This is in the hands of the private sector,” Carney said. “If we want to grow faster, we’re going to have to work smarter, invest better, (and) build new markets.”

‘There is some good news here, our economy has returned to growth.’

By JULIAN BELTRAME The Canadian Press
Fri. Apr 23 – 4:54 AM

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