Bank of Canada sees "softer" third quarter

Fri Nov 20, 2009 12:57am EST
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By Kristina Cooke

NEW YORK (Reuters) - Canada's economy performed worse than expected in the third quarter and while now recovering, it risks further setbacks due to the sharp rise of the Canadian dollar, Bank of Canada Governor Mark Carney said on Thursday.

Carney said the bank's projection last month of 2 percent annualized growth in the third quarter did not likely materialize but the overall outlook, including the strongest domestic spending profile in the G7 next year, remained the same.

"Recent indicators suggest somewhat softer growth relative to that 2 percent projection but the expectation is that the overall profile of the growth in that projection -- so accelerating growth in the fourth quarter and into 2010 for Canada -- remains valid," he said in a press conference following a speech in New York.

Finance Minister Jim Flaherty earlier on Thursday suggested he thought the economy could have stood still in the third quarter, saying he agreed with the Organisation for Economic Co-operation and Development's forecast that the growth profile for that quarter was "flattish."

Quarterly growth figures will be released on November 30 and analysts are mixed on whether the economy stopped shrinking.

"There continues to be a great debate over whether Canadian Q3 GDP will manage a positive figure, in keeping with most of its peers on the world stage. This is far from a foregone conclusion," said Eric Lascelles, chief economics and rates strategist at TD Securities.

Growth has been slowed down by the appreciation of the currency against the U.S. dollar and its volatility, Carney said, a line the bank has taken repeatedly in recent weeks.

"The current strength in our dollar is expected, over time, to more than fully offset the favorable developments since July," he said.   Continued...

<p>Bank of Canada Governor Mark Carney prepares to testify before the Commons finance committee on Parliament Hill in Ottawa October 27, 2009. REUTERS/Chris Wattie</p>