Canada growth pickup to fall short of Bank of Canada forecast: Reuters poll

Wed Apr 22, 2015 9:25am EDT
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By Anu Bararia and Leah Schnurr

BENGALURU/OTTAWA (Reuters) - Canadian economic growth will accelerate in the second half of the year but probably not as much as the Bank of Canada expects, suggesting it may be too soon to rule out another interest rate cut, a Reuters poll found.

The survey of over 40 economists showed Canada's economy will grow 2.0 percent this year and 2.2 percent the next, down from the 2.4 and 2.3 percent forecast in January.

That is much lower than predictions for the United States, which is expected to grow 2.8 percent. The most pessimistic growth forecasts for Canada, 1.5 percent and 1 percent for this year and next, are also lower than those for the United States. [ECILT/US]

All of the major bond dealers that responded to the survey expect first-quarter growth to be better than the no-growth forecast from the Bank of Canada, which used the phrase "atrocious" to describe the start of the year.

But even they say the bank is too optimistic about the rest of the year.

Economists predict annualized growth of 1.8 percent in the third quarter and 2.2 percent in the fourth quarter, compared with the central bank's 2.8 percent and 2.5 percent forecast respectively. Still, their expectations for the year were nearly in line with the bank's forecast for 1.9 percent this year.

Key to the bank's outlook is the theory that the impact of the drop in oil prices is more front-loaded to the start of the year before dissipating. Oil is a major export for Canada.

"The assumption is that the oil shock just lasts for about a quarter, and after that it is smooth sailing ahead," said Emanuella Enenajor, Canada and U.S. economist at Bank of America-Merrill Lynch.   Continued...

Production Associates inspect cars moving along assembly line at Honda manufacturing plant in Alliston, Ontario March 30, 2015.  REUTERS/Fred Thornhill