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article imageBoth IMF and Bank of Canada lower growth predictions for Canada

By Ken Hanly     Apr 17, 2013 in Business
Ottawa - Mark Carney, Governor of the Bank of Canada, lowered economic growth expectations for the first and second quarters in Canada. The IMF also predicted a lower growth rate as well.
The Canadian Central Bank report stated:"With continued slack in the Canadian economy, the muted outlook for inflation, and the constructive evolution of imbalances in the household sector, the considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required." Mark Carney, head of the Bank of Canada, made his last Monetary Policy report before leaving to serve at the Bank of England.
Carney left interest rates unchanged as inflation is low and raising rates could slow economic growth. The IMF also recommended not raising interest rates in Canada. The report said that spare capacity had increased in the Canadian economy. Originally the Bank saw the economy reaching full capacity with an inflation rate of 2 per cent by 2014, but now it predicts this will not occur before 2015.
Growth in 2013 is now predicted at 1.5%. This is equal to the new forecast of the IMF. Originally the Bank had predicted 2% growth back in January. Slower growth in government spending and a larger contraction in housing than forecast, as well as weaker business investment together are factors explaining the lower forecast. In spite of the slowing housing construction the Bank warned:: "There are still some signs of overbuilding, particularly of multiple-unit dwellings in some urban areas...Valuations in some segments of the housing market remain stretched."
Carney has still not dropped what many call his bias for tightening the housing market by raising interest rates at some time in the future. However, there is no sign of nor any need to do so right at present. Inflation in Canada was only 1.2 per cent in February.
The IMF also predicted a 1.5% growth in the Canadian economy this year, down from its January forecast of 1.8%. This will be the weakest growth in Canada since the recession in 2008. It will be the second year with growth less than 2%. The IMF said that high household debt in Canada would dampen demand and there will be a weaker housing market. The IMF cautioned that even the 1.5% prediction could be too optimistic. The fund cited the possibility that US budget tightening could curb imports, that the European crisis could flare up again, and commodity prices could be weaker.
Finance Minister, Jim Flaherty, based last month's budget on a predicted growth rate of 1.6% not far off the new IMF and Bank of Canada predictions. The IMF also lowered its growth predictions for the global economy to 3.3% from 3.5% in January. The IMF said that the road to recovery in advanced economies could be bumpy as much of Europe will remain in recession in 2013 but there will be stronger growth in the US, China, Japan, and Brazil. The IMF predicts US growth will average 3% in 2014. This growth could help Canada to grow by 2.4% in 2014 as well.
More about Imf, Bank of Canada, canadian economic growth, Mark Caney
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