20 October 2010
Canadian year growth is now estimated at 3%.
The reasons for such a pace can be both external and internal. The global recovery process turned out to be more difficult than it was expected earlier.
But the main thing the Bank worries about is the recovery going forward.
The latest outlook shows the possibility of a currency war with Asian countries. The deal is that China and other fast-growing Asian economies don’t want to let go control over their currencies to increase their domestic consumption, which should lead to the decrease of cheap goods export into the United States.
Another thing that troubles the BoC is the highest domestic debt burdens in history. Today the debt-to-disposable income among households is 147%.
Home prices haven’t decreased but the sales activity is not so high now, and a sudden home price decline can influence the household wealth badly.
“Such a price decline will damage other areas of the economy, such as consumption”, – the bank states.
But in the same time the bank doesn’t think these risks will be enough to derail the recovery. The interest rates remain at historically low levels and the business investment is picking up – of course, it will lead to productivity improvements going forward.
The main idea is that Canadian economy will eventually normalize, but it might take another two years.