October 1, 2013 / 4:17 PM / 5 years ago

Bank of Canada slashes third-quarter growth forecast, wary on exports

A man holds the new Canadian 100 dollar bills made of polymer in Toronto November 14, 2011. REUTERS/Mark Blinch

OTTAWA (Reuters) - The Bank of Canada on Tuesday sharply cut its growth forecast for the third quarter of 2013 and said the crucial export sector might pick up speed slower than initially expected.

Senior Deputy Governor Tiff Macklem said the central bank expected annualized growth in the third and fourth quarters to be in the 2 to 2.5 percent range before strengthening next year. In its monetary policy report released in July, the bank said third quarter growth would be 3.8 percent and fourth quarter growth would be 2.5 percent.

Macklem told a Toronto audience that a predicted switch in demand toward exports and business investment - important to help ensure a healthier economic growth rate and reduce reliance on consumer spending - had proved elusive.

“There is a risk that this rotation is delayed further,” he said in the prepared text of his speech.

The Bank has kept its key interest rate unchanged at a near record low 1 percent since September 2010 and Macklem gave no hints of a hike in the near future.

“With inflation subdued, monetary policy remains highly stimulative to provide time for the recovery in exports and investment to take hold,” Macklem said.

He said growth of at least 2.5 percent was needed to absorb the current slack in the economy. The bank expected household and government spending combined to contribute about 1.5 percentage points of growth.

To reach the required 2.5 percent growth, net exports and investment would need to contribute at least 1 percentage point. That implies combined growth of exports and investment of about 4 percent. In the last year net exports and investment in fact contributed nothing to growth, he noted.

Reporting by David Ljunggren, editing by Louise Egan

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