BOC counting on strong U.S. recovery

Housing market growth will lift Canada’s economy: Carney

Canada’s economic fate could rest strongly on its neighbours to the south. The Bank of Canada is putting its stock in a modest recovery in the United States to lift exports and investment in this country, which itself will see slower growth this year than previously thought.

“Given the growth that we expect in the housing market in the United States, we see about one per cent growth in Canada,” Bank of Canada governor Mark Carney said Wednesday. “That has a flow-through (effect) on exports.”

And in his last news conference in Ottawa before taking over the top job at the Bank of England, Carney maintained he was not personally disappointed by Canada’s below-forecast growth at the end of this term.

“We don’t put emotions into it. Our job is to be objective, and that’s what we are here,” he said. “There’s no emotion in creating forecasts.”

In its quarterly monetary policy report, released Wednesday along with the bank’s decision to keep interest rates on hold, policy-makers downgraded growth to 1.5 per cent this year, down from two per cent projected in the January report. In 2014, the economy is pegged to expand by 2.8 per cent, compared with the previous estimate of 2.7 per cent.

Overall, global growth is set at three per cent this year, up from the earlier forecast of 2.9 per cent, and 3.6 per cent in 2014, also up slightly from January’s estimate of 3.5 per cent.

The bank said the U.S. economy is continuing to expand “at a modest pace,” with policy-makers expecting U.S. growth of two per cent in 2013 and 3.1 per cent next year.

Bank senior deputy governor Tiff Macklem said “where we see the pickup is coming through exports.

“We are seeing a strengthening in private demand in the United States. You’re not going to see it as much in the headline numbers, because there’s a fairly large fiscal contraction in the United States.

But that private demand is positive for our exports,” said Macklem, who — as usual — joined Carney at Wednesday’s news conference. “So, the table is set.” Never in doubt was the decision by policy-makers to keep its trend-setting interest rate at its near-historic low of one per cent, where it has stood since September 2010 as the bank encouraged spending to drive recovery from the 2008-’09 recession. Economists see no change in rates until at least mid-2014.

At the same time, the bank is doggedly sticking to its theme that interest rates will eventually be going up, not down.

Significantly, there was no change Wednesday in the bank’s guidance on rates.

Some economists had been looking for policy-makers to weaken their slant toward raising borrowing costs.

“In effect, what we’re trying to communicate, both to market participants but really to Canadians … is that interest rate will rise after a certain time in order to meet the inflation target,” Carney said.