Canada 2010 GDP forecast cut to 3.3% amid US concerns

10 September 2010 15:06  [Source: ICIS news]

TORONTO (ICIS)--Canada’s economy is forecast to grow by a lower-than-expected 3.3% this year because of concerns about the US and the global economy, the country’s largest bank said on Friday.

Royal Bank of Canada cut its forecast from an earlier projection of 3.6% GDP growth.

“While Canada's second-quarter growth put real GDP close to its pre-recession high, concerns in the US and nervousness about the health of the global economy are weighing on the outlook for the second half of the year," said Craig Wright, the bank’s senior vice-president and chief economist.

US GDP growth had sharply weakened in the second quarter and recent reports on that country’s housing and labour markets had disappointed, Royal Bank said. The US is Canada’s largest export market by far.

The bank forecast that Canada’s GDP would continue to grow and that the economy’s output gap would be completely eliminated by mid-2012. The term output gap refers to the difference between what an economy produces and its potential output.

The labour market had recovered 94% of the jobs lost during the recession and the unemployment rate is expected to decline to 7.3% by the end of 2011.

In a related report, Canada’s federal statistics agency said on Friday that the unemployment rate rose to 8.1% in August, from 8.0% in July.

Royal Bank also lowered its 2011 GDP forecast for Canada – to 3.2% from 3.5%.

Government infrastructure spending would be exhausted in the first quarter of 2011, putting pressure on the private sector to fill the void and sustain economic growth, the bank said.

Earlier this week, the country’s central Bank, the Bank of Canada, raised its benchmark lending rate to 1%, the third increase in a row since June when Canada became the first G7 country to raise rates after the recession.

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