Canadian economy seen facing difficult 2009

Mon Feb 23, 2009 10:42am EST
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By Jennifer Kwan

TORONTO (Reuters) - The Bank of Canada said on Monday the Canadian economy faces a "difficult" 2009, but repeated that the recovery will be supported by the past depreciation of the Canadian dollar and by timely monetary and fiscal policy.

Real gross domestic product is expected to drop 1.2 percent in 2009 but will rebound 3.8 percent in 2010, Bank of Canada Senior Deputy Governor Paul Jenkins said at the Colleges Ontario annual conference in Toronto.

"In the current environment, the bank's projections -- and those of all forecasters -- are subject to an unusually high degree of uncertainty," Jenkins noted on a slide presentation.

He said the economic recovery would be supported by the country's relatively well-functioning financial system, as well as a rebound in external demand and the associated firming of commodity prices.

The central bank said last week that economic data so far had been consistent with its forecast of a sharp contraction in the first quarter.

It has said it expects the recovery will start in the third quarter, and will partly depend on the stabilization of the global financial system.

A sharper than expected drop in retail sales in December added to the picture of the weakening economy, and cemented the market view that the central bank is on track to cut its key overnight rate by another half-point on March 3 to 0.50 percent.

Since December 2007, the Bank of Canada has cut its key rate by 350 basis points.   Continued...