Calgary Herald

interest rates on way up: bmo

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Paul Vieira

Stronger economic growth, propelled by a commodity boom and an improving U.S. job market, will prompt the BankofCana­da to begin rate hikes in July to a two per cent level by the end of the year and 3.5 per cent in late 2012, economists at BMO Capital Markets said Wednesday in their updated outlook.

The investment bank’s economics team projects first-quarter annualized growth of 4.4 per cent, helping to power the Canadian economy to a three per cent advance in 2011 — an improvemen­t from the 2.7 per cent gain BMO Capital Markets had forecast back in January. By year’s end, the country’s unemployme­nt rate should drop to 7.4 per cent from its present 7.8 per cent level.

“The combinatio­n of low interest and high commodity prices are fuelling the domestic economy,” said Sal Guatieri, senior economist at BMO Capital Markets.

Consumersp­ending is expected to ease from 2010 levels, to three per cent, but he said exports and a 12.8 per cent surge in nonresiden­tial business investment would pick up the slack.

Canada also stands to benefit from an improving U.S. economy, poised to expand 3.2 per cent in 2011, as the job market begins to turn around based on March data, he added. Monthly job gains in the 200,000-plus range could boost confidence among U.S. firms and households, translatin­g into increased spending and investment.

Risks to the outlook include soaring oil prices, which could deliver a “serious blow” to the North American economy; Europe’s sovereign debt woes, with Portugal on the brink of an internatio­nal bailout and concerns mounting over Spain; and any further fallout from Japan’s earthquake and subsequent nuclear crisis.

The Bank of Canada, which issues its next rate decision on April 12, is likely to upgrade its outlook for 2011 based on the data that has emerged, Guatieri said. In its last outlook tabled in January, the central bank expected 2011 growth of 2.4 per cent, which is now well below estimates in the four per cent and five per cent range.

The combinatio­n of low interest and high commodity prices are fuelling the domestic economy Sal Guatieri,

BMO

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