The Bank of Canada is maintaining its low interest rate of one percent but slashing growth projections, the bank said in a July 17 statement.
The bank continues to predict decent growth, at 2.1 percent in 2012 and 2.3 percent in 2013. However, this is down from the 2.4 percent in both 2012 and 2013 predicted by its April 2012 Monetary Policy Report.
The bank expects the economy to operate at full capacity again in the second half of 2013, as opposed to its April projection of the first half 2013.
While the U.S. recovery continues at a slower pace, “developments in Europe point to a renewed contraction” and the decelerating growth in China and other emerging economies was faster than expected. The bank cites these factors as the reason why it lowered Canada’s growth forecast.
Nonetheless, although “global headwinds are restraining Canadian economic activity, domestic factors are expected to support moderate growth in Canada,” the statement said.
Consumption and business investment will lead that growth, reflecting the “very stimulative domestic financial conditions” (low interest rates).
However, reduced commodity prices from the worsening international situation, as well as record-high household debt, will hold back growth.
Other predictions:
• Housing market expected to cool
• Government spending will be too restrained to aid growth in 2012, and will contribute only “modestly” afterwards
• Canadian exports predicted to remain below pre-recession peak until 2014
• Core inflation forecast to remain around two percent; total CPI inflation expected to remain under two percent target until mid-2013
The bank maintains that, when it does change its interest rate, it will likely be raising and not lowering the cost of borrowing.
“To the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the 2 percent inflation target over the medium term,” the statement said.
The Epoch Times publishes in 35 countries and in 19 languages. Subscribe to our e-newsletter.
