The Bank of Canada raised its outlook for economic growth on April 13. It also provided information that implies interest rates could rise a little earlier than expected, perhaps in early 2017 rather than later in the year. All that sounds positive. But it’s not, really. Canada’s economy still is in trouble.
Let’s start with interest rates. Policy makers opted to leave the benchmark rate unchanged at 0.5%, a quarter point above the lowest on record. The Bank of Canada also released its annual assessment of potential growth, or the maximum speed at which the economy can expand without stoking runaway inflation. The new number is 1.5% through 2018. Estimates of potential are imprecise. Still, the revision is a slap in the face of every person who over the past couple of decades believed balanced budgets, lower taxes and exports to the United States would be enough to secure Canadian prosperity. Canada’s potential growth rate between 2010 and 2014 was 2%, and last year the central bank estimated it was 1.8%. If Canada’s economy was an automobile, it would be a full-sized pickup powered by a 4-cylinder engine.
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