Thursday, January 21, 2010

Canada To Return To Full Growth, But Depends on Debt Cutting in the U.S.

Ottawa, picture taken today at 2:17PM as I was at Parliament

Canada will return to full growth by 2010, so says Marc Carney, governor of the Bank of Canada. Some may ask what he is smoking. His statements may make many bearish investors rethink their stance though.

The Bank of Canada said the economy will grow faster than expected from the second quarter through early next year and also raised its forecast for the United States. However, it warned that a durable global recovery "depends on debt-cutting measures in advanced nations and on countries such as China continuing to stoke spending on goods from abroad".

However, the improved forecast for Canada is due to the better outlook for the U.S. and it also said the U.S. and global gains may not be sustainable without more narrowing of the large imbalances that helped fuel the crisis: too much spending in the U.S. and too much saving in Asia.

“Sustained improvement over the medium term will require fiscal consolidation in the United States and several other advanced countries, together with policy-induced domestic demand growth and real exchange rate adjustment for surplus countries,”

The central bank kept its estimate of 3.3% annual growth for the Canadian economy in Q4 2009 and tha GDP will expand at a 3.5% January to March (down from 3.8 percent previous forecast). The economy will then grow by 4.3% in Q2, 4% in Q3, and 3.8 in Q4 2010 and in the first three months of 2011, and then slowing down. Wow, talk about precision!

“Export growth is projected to be somewhat stronger than was expected last October, owing to a more favourable outlook for the U.S. economy, particularly in the sectors that figure most importantly for Canadian exporters,”.

Canadian dollar, stimulus, private sector growth:

The central bank assumes that the strong Canadian dollar will trade at an average of 96 cents US.

"Improved prospects for the global economy remain heavily dependent on monetary and fiscal stimulus and measures that have helped nurse financial markets back to health". “Self-sustaining growth in private demand, which will be required for a solid recovery, may take longer than expected to materialize,”.

“Economic growth is expected to become more solidly entrenched over the projection period as self-sustaining growth in private demand takes hold,” “As the recovery in the Canadian economy continues, excess supply will gradually be absorbed.''

“Following a period of vigorous growth, housing investment is projected to slow through 2010 as pent-up demand subsides and affordability declines,”

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