Bank of Canada lowering forecast
OTTAWA—The Bank of Canada signalled today that it’s lowering the forecasts for economic growth in the second half of 2012 and possibly for next year—citing a more prudent consumer and an export sector that has yet to fully recover.
The central bank said today, through a speech by senior deputy governor Tiff Macklem, that it no longer expects the July-September period to grow at a rate of 3.8 percent as previously forecast.
Previously, it had pencilled in a solid 2.5 percent expansion for the last three months of the year.
The new projections were unveiled in an advance copy of a speech to be delivered by Macklem to a business audience in Toronto.
It’s an unusual occurrence for the central bank, which normally issues new forecasts during its quarterly monetary policy reports.
The next report will be issued Oct. 23.
It was unclear why the bank decided to jump the gun, other than that early indicators have pointed to a more subdued bounce-back for the third quarter.
Yesterday’s report on gross domestic product from Statistics Canada found the economy advanced by 0.6 percent in July—a good monthly number but less than would be necessary to jump-start the quarter to a near four-percent surge.
In the speech, Macklem explained Canadians had become more cautious about spending—a welcome development giving debt levels already are at record highs in relation to income.
“This is good news,” Macklem said. “But this new-found and welcome household prudence is dampening growth.
“To replace this growth, we need a rotation in demand toward exports and business investment,” he noted.
“Unfortunately, this rotation has proven elusive.”
Macklem said the central bank still believes a revival in the U.S. economy eventually will lead to an increase in demand for Canadian products.
But due to competitive pressures and continuing weak demand, it is taking longer.
The delay also has restrained businesses from stepping up needed investments that would make them uncompetitive—a vicious negative cycle that is keeping our economy from returning to potential.