Canada 2010 growth forecast cut to 3.0% on slower housing markets

20 October 2010 18:29  [Source: ICIS news]

TORONTO (ICIS)--Canada’s central bank has cut its 2010 growth forecast for the country’s economy to 3.0%, from 3.5%, largely due to declining housing markets and a weak US outlook, it said in an update on Wednesday.

The Bank of Canada said domestic housing activity was declining markedly from high levels as government policy stimulus measures had resulted in expenditures being brought forward into late 2009 and early 2010.

The bank also said that economic growth in Canada’s key export market, the US, was weaker than it had expected in its earlier projection from July, with US housing showing renewed weakness.

Following the expiry of the US tax credit for first-time homebuyers, housing sales had decreased markedly, suggesting softer underlying demand, it said. High inventories, including foreclosures, of unsold houses were expected to restrain new US construction and housing prices, it added.

In Canada, the composition of demand was expected to shift away from government and household expenditures towards business investment and net exports, the bank said.

However, export strength would be sensitive to currency movements, the bank said, adding that “heightened tensions” in international currency markets could make the global recovery more difficult.

The Canadian dollar reached parity with the US dollar last week before slipping slightly this week. On Wednesday, one US dollar bought Canadian dollar (C$) 1.02.

“The economic outlook for Canada has changed,” the bank said.

“The economy is entering a period of more modest growth, following the robust expansion of domestic demand since mid-2009 that restored pre-crisis levels of output and employment,” it said.

For 2011 and 2012, the bank forecast growth rates of 2.3% and 2.6%, respectively. This compared with its earlier forecast of 2.9% growth for 2011 and 2.2% in 2012.

Earlier this week, the bank said it would leave its target for the overnight rate at 1%, after three hikes since June when Canada became the first G7 country to hike rates after the global recession.

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