Monday, July 27, 2009

Economic Growth is on the Horizon

While it is not predicting the end of the economic recession – the worst since the Second World War, the Canadian government is presenting a bright outlook for the immediate future. The government now thinks that the current year's downturn will be less severe than earlier predictions and growth for 2010 will be stronger. As expected, the Bank of Canada is keeping its key policy rate at 0.25-per-cent – an historic low and has pledged to keep that rate until the spring of 2010.

In a move that has surprised some economists, the central bank has reduced the amount of money available to chartered banks in order to support borrowing and lending. Bank Governor Mark Carney has noted that some banks were not drawing down as much money as the Bank of Canada was making available, Mr. Carney cautiously sees this trend as a strong indicator of improving financial markets.

"Stimulative monetary and fiscal policies, improved financial conditions, firmer commodity prices, and a rebound in business and consumer confidence are spurring domestic demand," according to a recent statement released by the central bank.

Mr. Carney has improved his financial forecast for the Canadian economy. An earlier April forecast of three percent annual contraction has been reduced to 2.3 percent. Similarly, he has increased his 2010 growth projection by half-a-point to 3.5 percent.

While agreeing that the future is looking brighter, leading analysts at several of the nation's leading banks view Mr. Carney's outlook as overly optimistic. Most forecasts in the private sector are limiting growth in 2010 to 2.0 percent.

In any event, Mr. Carney has not changed his opinion that complete economic recovery will not be realized before mid-2011.


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