Bank of Canada counting on strong U.S. recovery
OTTAWA — Canada’s economic fate could rest strongly on its neighbour to the south.
The Bank of Canada is putting its stock in a modest recovery in the United States to lift exports and investment in this country, which itself will see slower growth this year than previously thought.
“Given the growth that we expect in the housing market in the United States, we see about one per cent growth in Canada,” Bank Governor Mark Carney said Wednesday. “That has a flow-through (effect) on exports.”
In its quarterly Monetary Policy Report, released Wednesday along with the bank’s decision to keep interest rates on hold, policy-makers downgraded growth to 1.5 per cent this year, down from two per cent projected in the January report. In 2014, the economy is pegged to expand by 2.8 per cent, compared to the previous estimate of 2.7 per cent.
Overall, global growth is set at three per cent this year, up from the earlier forecast of 2.9 per cent, and 3.6 per cent in 2014, also up slightly from the January estimate of 3.5 per cent.
The bank said the U.S. economy is continuing to expand “at a modest pace,” with policy-makers expecting U.S. growth of two per cent in 2013 and 3.1 per cent next year.
Tiff Macklem, the Bank of Canada’s senior deputy governor, said “where we see the pickup is coming through exports.”
“We are seeing a strengthening in private demand in the United States. You’re not going to see it as much in the headline numbers, because there’s a fairly large fiscal contraction in the United States. But that private demand is positive for our exports,” Macklem said.
Never in doubt was the decision to keep the trend-setting interest rate at its near-historic low of one per cent, where it has stood since September 2010. Economists see no change in rates until at least mid-2014.
In its report, the bank said price increases are expected to remain “subdued in coming quarters” before reaching the optimum level of two per cent by mid-2015. Inflation was running at 1.2 per cent in February. The March reading will be released Friday by Statistics Canada.
The bank said growth in consumer spending, which has pushed household debtto-income ratios to record highs, is likely to continue a recent slowing trend, reflecting “moderate increases in consumption and further declines in residential investment.”