The IMF lowered its growth projections for Canada by 0.2 percent in 2016 and 2017 from its January update to 1.5 percent and 1.9 percent respectively.
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The bank’s report expects total direct government spending to add 0.5 percentage points to growth in the 2016 calendar year and 0.6 points in 2017, though the impact of the budget will be widespread.
“The combined effect of all these global and domestic developments would have been a modest downgrade of the bank’s outlook”, the bank said in a statement that accompanied the latest release of its quarterly monetary policy report.
The Bank of Canada based its assessment on the department’s assumptions, which it considered reasonable.
Only recently, the US was expected to be head and shoulders above this country in economic growth. “And at that point, inflation will be sustainably where it belongs”.
More significantly, the USA dollar has experienced a downtrend after the Federal Reserve reneged on lifting interest rates yet again. However, “the picture is coming together”.
“The finance minister, sorry, is not my boss”, Poloz said.
Canada’s central bank maintained its key lending rate at 0.5 percent Wednesday, saying the oil rout continues to dampen growth but massive government spending should lead to a turnaround.
The upgrade in the bank’s outlook came as little surprise to private sector forecasters.
“Bank of Canada – simultaneously upgrading its growth forecast while also trying to avert a further spike in the Canadian dollar”, Porter wrote.
But the currency’s fall has also made Canadian exports more attractive, helping to shift the economy away from a battered resource sector. The more important factor in Canadian export growth now is USA demand, he said.
“I think the Bank of Canada’s meeting (on Wednesday) showed that they’re still very cautious”, said Emanuella Enenajor, senior economist at Bank of America/Merrill Lynch in NY.
“A good part of the rally in oil has been anchored by expectations of some kind of production agreement between OPEC and Russian Federation”, said Mattina. As a result the output gap could close sooner than expected, likely in the second half of 2017.
The central bank also feels the economy’s potential output is lower now given the fall in the price of oil and other commodities.
The central bank, which is predicting a transition to non-energy exports, said it appears “the positive forces at work in the economy are starting to outweigh those that are negative”, noting that shrinking business investment should “turn positive later this year”.
The team led by Governor Poloz raised growth forecasts from 1.4% to 1.7% in 2016 and marginally revised the prediction for 2017 from 2.4% to 2.3%.
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Since January, however, conditions have apparently already started to improved for the overall Canadian economy.
