Bank lowers growth forecast

The Bank of Canada has lowered its forecasts for economic growth in the second half of 2013 and possibly for next year, citing a more prudent consumer and an export sector that has yet to fully recover.

OTTAWA — The Bank of Canada has lowered its forecasts for economic growth in the second half of 2013 and possibly for next year, citing a more prudent consumer and an export sector that has yet to fully recover.

Senior deputy governor Tiff Macklem said Tuesday that the central bank no longer expects the July-September period to grow at a rate of 3.8 per cent as previously forecast.

Instead, the bank says the third quarter will likely show an economy that advanced at a more moderate pace of 2.0 per cent to 2.5 per cent, the same speed it now expects will continue in the fourth quarter. Previously, it had penciled in a 2.5 per cent expansion for the last three months of the year.

The Canadian dollar dipped on the news and closed down 0.21 of a cent at 96.85 cents US on Tuesday.

The new projections were unveiled in an advance copy of a speech delivered by Macklem to a business audience in Toronto.

It was 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.

A report Monday on gross domestic product from Statistics Canada found the economy advanced by 0.6 per cent in July, a good monthly number but less than would be necessary to jump-start the quarter to a near four per cent surge.

In the speech, Macklem explained that Canadians had become more cautious about spending, a welcome development giving that debt levels are already 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.”

“Unfortunately, this rotation has proven elusive.”

Macklem said the central bank still believes a revival in the U.S. economy will eventually lead to an increase in demand for Canadian products, but due to competitive pressures and continuing weak demand, it is taking longer than expected.

The delay has also restrained businesses from stepping up investments, a vicious negative cycle that is keeping the economy from returning to its potential.

Although Macklem did not specifically refer to 2014, the analysis suggests that the bank may also be preparing to revise downward next year’s 2.7 growth estimate, which many economists already consider overly rosy.

In an initial reaction to the speech, CIBC chief economist Avery Shenfeld said the bank may keep interest rates on hold until 2015.

Macklem made no mention of the U.S. government shutdown and pending debt limit deadline, which economists say could sap as much as 1.5 per cent from U.S. growth if the crises persist. Such a scenario could also rebound on Canada, particularly in the key export sector.

Capital Economics has calculated the immediate hit to Canada would be in the range of three-tenths of one per cent, but that the consequences would be more severe if the impasse lasts and if Congress refuses to pass legislation to raise the U.S. debt limit by Oct. 17, causing a technical deft default.

In a statement, federal Finance Minister Jim Flaherty also expressed concern with developments south of the border.

“This is a reminder that while Canada’s economy remains strong, we are still vulnerable to uncertainties outside of our borders, especially in the U.S. and Europe.”

Macklem’s speech, his first since losing out to Stephen Poloz for the top job at the central bank in June, hardly painted a picture of a strong economy.

Rather, the assessment was of an economy struggling to achieve liftoff, with a growth rate below the 2.5 per cent needed to return to full capacity.

Some analysts contrasted the speech to the more hopeful address made by Poloz only two weeks earlier.

“The overall tone of Macklem’s comments seem to be sobering, if not simply dovish, particularly when compared to governor Poloz’s recent assessment that Canada is near a tipping point for improving confidence,” David Watt, chief economist with the HSBC Bank in Canada, said in a note to clients.

Still, Macklem said the central bank is holding out hope the a revival in U.S. demand will set the wheels in motion for stronger exports and beefed-up business investment, which in turn should lead to great productivity and competitiveness.

“Some recent surveys and other evidence, including the pickup in firm creation, suggest that firms are becoming more optimistic,” he said. “And once the sequence of stronger exports, rising confidence, increased investment and stronger productivity is launched, it could well gain traction faster than expected.”

Just Posted

Red Deer woman one of three arrested by Sundre RCMP

The 19-year-old had numerous arrest warrants out of various jurisdictions

Businessman and volunteer named 2019 Citizen of the Year

John Donald’s parents and sister were each honoured previously

School leader named Red Deer Young Citizen of the Year

Leading by example at Hunting Hills High School

Suspects shot at pursuing police during crime spree

No police officers were injured in May 17 shooting

Mental health survey looks at children and youth in Red Deer

Parent and guardians experiences accessing services for children

B.C.’s fight to regulate bitumen through pipelines to go to Canada’s top court

BC Appeal Court judges found B.C. cannot restrict bitumen flow along Trans Mountain pipeline

Cast your votes for the Best of Red Deer

Nominations for the Best of Red Deer Readers’ Choice Awards are officially… Continue reading

Perhaps part of the problem is our phones are too mobile

It’s gotten so bad, they’re selling fake phones in Mexico. That’s right,… Continue reading

College Beat: Convocation celebrates success and future possibilities

On June 7, at our Gary W. Harris Canada Games Centre, we… Continue reading

Veer: Public safety is council’s top priority

The number one question that City Council continues to hear from our… Continue reading

Padres knock off Blue Jays 6-3

Padres 6, Blue Jays 3 TORONTO — Hunter Renfroe hit a tiebreaking… Continue reading

Scholarship named in honour of young Lacombe crash victim

Scholarship given to committed Grade 12 teen mentors in the community

Solution to save the middle class

Some friends and I were having a discussion about the ever-growing gap… Continue reading

O Canada: Hockey hotbed now produces tennis players, too

ROME — It’s typically Canadian that Denis Shapovalov, Felix Auger-Aliassime and Bianca… Continue reading

Most Read