OTTAWA — Battered by European debt woes and a global slowdown, Canada’s economy is approaching stall speed as the year comes to a close but is likely to avoid an outright recession, predicts the Bank of Canada.
The central bank fleshed out its new outlook for the global and domestic economies Wednesday, saying Canada’s growth rate will dip as low as 0.8 per cent in the last three months of the year, after rebounding somewhat to two per cent in the third quarter.
That’s a massive downgrade from what the bank had been expecting for the second half of this year, when in June it predicted growth rates approaching three per cent.
But bank governor Mark Carney told a news conference that the global picture had materially worsened in the past few months when global confidence has been shaken by the escalating European debt crisis, a weaker U.S. economy that puts the country at risk of a slump and even slowing growth in emerging nations, including China.
The new projection shows global growth braking to 3.1 per cent in 2012 from a weak 3.8 this year, and the U.S. barely edging about above one per cent until the middle of 2012.
Amid this sea of trouble, Canada remains a relative safe harbour but not unaffected.
Carney said the fourth quarter, the October-December months, appears weaker than it is due to temporary factors and that growth will be on a stronger track starting next year, when the first three months will show a 1.9 per cent advance.
“We are expecting the situation in Europe, the renewed weakness in the United States, will have an impact on confidence in Canada, on consumption, on the margin in investment, also it’s having an impact on exporters (because) there’s less demand out there,” he explained.
“But as those start to move away, what we are expecting is modest growth in Canada and then a pick-up which begins from the middle of next year.”
The bank’s latest forecast predicts that the economy will have advanced 2.1 per cent this year, soften to 1.9 per cent in 2012 and pick up speed to 2.9 per cent in 2013.
Scotiabank economist Derek Holt, who is bearish on the near-term future prospects, praised Carney for becoming more “realistic” about the economy’s potential. But others thought the governor had swung too far after the summer’s optimistic report.
“We see the bank as now too pessimistic on global growth, leaving a bit more upside for Canada next year if the U.S., for example, extends tax cuts for another year,” said CIBC chief economist Avery Shenfeld.