Canada’s economy slowing sharply, central bank says

OTTAWA - Canada’s economy is slowing much faster than previously expected, the Bank of Canada said Thursday in a bleak outlook that stresses mounting risks from Europe’s debt crisis and a possible global stall.

Still, the bank said it does not expect to backtrack on its current trend to higher short-term interest rates. Bank of Canada’s key rate has risen half a point since early June, including a quarter-point hike on Tuesday.

The Bank of Canada’s benchmark rate remains extremely low by historical standards, after it was lowered to a record low of 0.25 per cent in mid-2009 to stimulate borrowing and the help the economy recover from a major recession.

“The projection includes a gradual reduction in monetary stimulus consistent with achieving the inflation target” of two per cent, the bank states in its quarterly monetary policy report.

The 28-page document makes clear that the Bank of Canada’s governing council sees conditions in Canada and around the world deteriorating since it’s last assessment in April, and risk factors intensifying.

Canada’s economy is already in the midst of a sharp pull-back compared with the strong 6.1 per cent acceleration that occurred in the first three months of 2010, the bank says.

It estimates the just-ended second-quarter growth will come in at three per cent, almost a full percentage point below what the bank forecast in April.

As well, the current third quarter — spanning the July to September period — will be even weaker with a 2.8 per cent expansion. That’s seven-tenths of a point below the previous forecast.

For the year, the bank says Canada’s economy will advance 3.5 per cent this year and 2.9 per cent next year.

While employment has sharply picked up, the bank points out that hours worked remain down and income gains will be tepid going forward.

This will moderate consumer appetite for spending, further weakening the recovery.

The bank’s expectations of the Canadian dollar is also more modest, in the 96-cent range, due to dampened global demand and softer prices for commodities that Canada exports.

Canada’s more modest economic expectations are mostly due to the global and U.S. recoveries not unfolding as strongly as anticipated, the bank says, scaling back expectations for the world as a whole to 4.2 per cent and for the United States to 2.9 per cent this year.

The new projections, several tenths lower than in April, are still some ways from a double-dip recession, but the Canadian central bank cautions the risks of further deterioration are real.

At different points in the 28-page report, it points to risks stemming from the European crisis, lower growth in China, high unemployment, loss of confidence, weak consumer demand and businesses too fearful to invest in the future.

“Some of the risks identified in the April report have materialized. Most notably, sovereign debt concerns in Europe have intensified,” the bank’ states.

“It should be noted that the downside risk of a more pervasive (European) crisis persists,” it adds at another point.

“If realized, the impact could be sizable. First, a severe disruption to bank funding marke

 

reference??

 

That was from Toronto Star, but is front page of most Canadian dailies !

 

Finally, the post-Olympics Meltdown can begin! :eek:

 

LOL You are crazy if you think the olympics can bring a 6.1% quarterly growth rate to a country...

 

Slowing down from 6.1% is not unexpected. However the new 3.5% forecasted growth rate for 2010 is below the previously expected 3.7%. Housing has cooled since the BOC has raised rates 50 points.

The main indicator is the labour market. Canada is creating jobs every month and has already fully recovered the lost jobs from the 2008 tsunami.

 

I don't know they seem to be the best large economy in the west in addition to all the resources they have I think they are best to weather the storm.

 

Canada is one of, if not the only, major Western economy not heavily burdened with debt. In theory, Canada will not need to slash spending and hike taxes. This is a great relief to me as a Canadian citizen.

As long as the Conservative government remains in power, I feel confident. But as we all know, politicians are scum and can fuck things up at the drop of a hat.