A new, optimistic forecast by the Bank of Canada suggests the recession is essentially over in this country as we bounce back at a rate twice as strong as the United States.
The central bank says the economy will grow by 1.3 per cent during the summer months -- this is following three straight quarters of sharp contraction.
Canada's rebound will more than double that of the United States next year with a projected growth of 3 per cent; as opposed to 1.4 per cent south of the border, according to the bank.
Despite the rosier outlook, the bank still said it will take until mid-2011 for the economy to return to full capacity.
It also warns that Canada's recovery is dependent on a massive government stimulus and low interest rates to support domestic activity and boost consumer spending.
"To sustain global growth, effective and resolute policy implementation remains critical," said Bank of Canada Governor Mark Carney on Thursday in Ottawa after the release of the bank's monetary report.
The Canadian economy could also continue to shed jobs, he said.
"We can expect further adjustments and probable further rises in unemployment, even though the economy has started to grow," Carney warned.
Patricia Croft, chief economist at RBC Global Management, said that optimistic predictions should be tempered by caution -- something which economists have been discussing of late.
"There's lots of talk about a double dip, about a possible short lived recovery in the U.S. economy, and subsequently, (it) sinks back into recession," she told 麻豆影视 from Toronto.
Still, if the forecast proves to be true, Canada would be at the forefront of countries climbing out of what economists have called the worst global recession in decades.
The bank, however, said it's still worried that the U.S. and European financial sectors could have some unpleasant surprises in store, which would hammer the global economy again.
Further, the higher loonie isn't helpful, due to our dependence on exports. "A stronger and more volatile Canadian dollar represents an important downside risk to output and inflation," said Carney.
Reacting to the new forecast, financial analyst Theo Caldwell said the trick for the bank is "to encourage that positive outlook, without the dollar going crazy."
"At 90 cents, that's really tough on exporters and for the labour market in Ontario. Oil is great for our friends in Alberta, but you have to somehow detach the price of oil from the Canadian dollar without wading in and manipulating the market," Caldwell said in an interview with 麻豆影视 Channel.
The Loonie closed up 1.01 cents on Thursday, to 92.04 cents US, on news of the bank's forecast. In fact, the Canadian dollar gained more than any of the other major currencies.
But there is some hope ahead for Canada's export sector, according to the bank, which said the sector should benefit from the U.S. recovery starting next year. While Canadian exports of vehicles and wood products were hit hard during the downturn -- they will be benefit disproportionately once demand returns in the U.S., said the bank.
The Bank of Canada first hinted at a brightened economic outlook on Tuesday in a statement accompanying the decision to keep short-term interest rates unchanged until the end of June 2010, "in order to achieve the inflation target."
Since October, Canada has lost close to 400,000 jobs. Currently, the bank estimates the Canadian economy is operating 3.5 per cent below capacity.
On the heels of the bank's upbeat assessment, Federal Finance Minister Jim Flaherty weighed in, saying that the Canadian economy has stabilized and that a recovery is underway.
When asked whether the country is pulling out of the recession, he echoed the central bank's assessment. "I think we're going in the right direction," he said.
"Consumer confidence is relatively strong and growing," he told reporters in Toronto, after participating in the groundbreaking for a new park on the city's waterfront. "We are seeing good home sales numbers (and) some improvement in retail sales."
Flaherty also cited the nearly 1,000 infrastructure projects currently underway across the country.
"Canada went into the recession much later than the United States (and) will come out more strongly than the United States," he added, "because our fiscal fundamentals are stronger. We weren't running big deficits in Canada."
