SEARCH NEWS
ECONOMY: Central bank predicts growth at 1.8% this year as Canada avoids recession
        (AlbertaIndex, January 28, Monday) --- The Canadian economy will grow by 1.8 percent this year and 2.8% in 2009 as it avoids being dragged down into recession by its troubled southern neighbor, said the Bank of Canada.
        In its January Monetary Policy Report Update, the bank said the Canadian economy continues to operate above its production capacity, despite some slowing in growth in the fourth quarter of 2007.

Both total and core inflation have been lower than projected in the October Monetary Policy Report, largely reflecting a price-level adjustment related to increased competitive pressures in the retail sector stemming from the level of the Canadian dollar.

The bank said financial conditions have deteriorated since October, leading to tighter credit conditions in industrialized countries. Given this, and a deeper and more prolonged decline in the US housing sector, the US economic outlook for 2008 has been revised downwards significantly.

While the weaker US economy and tighter credit conditions will put downward pressure on Canada’s export growth, domestic demand is expected to remain strong, supported by continued income growth associated with high commodity prices.

Overall, the bank projects that the Canadian economy will expand by 1.8 per cent in 2008 and 2.8 per cent in 2009. This implies that the economy will move into excess supply in the second quarter of 2008, and then return to balance in early 2010.

Both core and total CPI inflation are projected to fall below 1.5 per cent by the middle of 2008 before returning to 2 per cent by the end of 2009. This primarily reflects the price-level adjustment noted above and, for total inflation, the recent reduction in the GST. Excluding the impact of the GST reduction, total inflation is projected to average close to the 2 per cent target throughout 2008 and 2009.

The banks said risks to its inflation projection are judged to be roughly balanced. On the upside, there is continued strong momentum in domestic demand growth, and capacity pressures could be stronger than judged, especially if weak productivity growth were to persist. On the downside, the tightening in credit conditions globally and in Canada could be greater and more protracted than assumed, and there could be a more prolonged slowdown in the US economy.

As well, the bank said competitive pressures in Canada’s retail sector could put more downward pressure on prices than assumed.

This Governor David Dodge’s final report after seven years at the helm before his handover to Mark Carney, a former senior official at the Department of Finance.


Did you enjoy this article? Please share it!
Reddit!Del.icio.us!Google!Netscape!StumbleUpon!Newsvine!Furl!Yahoo!