Canada data, central bank suggest rebound on track

Tue Jan 19, 2010 2:40pm EST
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By Ka Yan Ng

TORONTO (Reuters) - Strong economic data and a central bank growth forecast suggested on Tuesday that Canada's recovery from recession is on track, though soft private sector demand and a buoyant currency were seen as risks.

Canada's composite leading indicator put up an unexpectedly strong performance in December, and stretched its streak of gains to seven months, in the latest sign that the worst of the recession is over.

The Bank of Canada trimmed its 2010 growth forecast slightly but it still predicted the economy would grow 2.9 percent this year, boosted by increased confidence, improved financial conditions, global growth and better export prices.

The central balanced that view by cautioning about the considerable slack in the economy, lack of private sector stimulus so far in the recovery, and the unfavorable impact of a strong currency on exporters.

Canada exited recession in the third quarter, but barely, though fourth-quarter data has shown more bounce. In addition to predicting growth this year, the Bank of Canada raised its growth forecast for 2011, when it expects private sector demand to drive the economy.

The bank will provide more details in Thursday's Monetary Policy Report (MPR), the bank's quarterly economic projection, and in an ensuing press conference by Governor Mark Carney.

"While some of the economic deck chairs get moved about in the post meeting statement, the general thrust of the Bank of Canada thesis remains consistent with what was seen in October's MPR," said Stewart Hall, an economist at HSBC Securities Canada.

The Bank of Canada's rate announcement and pledge to keep its conditional commitment to low interest rates until the end of the second quarter came on the heels of the strong leading indicator report.   Continued...