This article is funny on a number of different levels. The first one is the 12 trillion dollar American economy grew by 8.2 percent and the poco Canadian economy is expected to grow by 1.8%. So, let's not go taking economic lessons from Canada.
The second thing is look at the way they've phrased these growth numbers. It looks like they're almost gleeful that growth is this high. Imagine a similar article with these growth numbers coming from an American press report.
The third issue is they believe this level of growth automatically means they should raise interest rates.
As I said, too funny....
Economy will grow by 1.8%: OECD
Outlook matches forecast from private sector
Central bank might have to raise interest rates
thestar.com
STEVEN THEOBALD
CANADIAN PRESS
Canada's economic growth is accelerating with enough strength that the central bank ought to be raising interest rates soon, says the OECD.
Canadian real gross domestic product, hobbled in the first half of 2003 by shocks such as SARS, is in full recovery mode and will expand by 1.8 per cent this year, the Organization for Co-operation and Development said yesterday.
"Since most of the above-mentioned shocks have now ceased to affect output, a strong bounce-back is expected in the last quarter of 2003, as also suggested by the recent pickup in job creation," the OECD said.
"Activity should continue to expand thereafter at a pace slightly exceeding that of potential output, even though the lagged effects of exchange rate appreciation will continue to be felt for some time."
Real GDP will increase by 2.8 per cent next year and 3.2 per cent in 2005, the Paris-based group predicted.
The OECD forecast lined up with private-sector outlooks, but what caused a bit of a stir was its warning that the Bank of Canada "will need to be ready to resume monetary tightening as soon as the recovery is firmly in place."
Financial markets reacted to the report by buying Canadian dollars, starting with currency traders overseas.
"It got a lot of air time in Europe this morning," said Andrew Pyle, senior financial markets economist at Scotia Capital.
The Canadian dollar ended the day at 76.68 cents (U.S.), up 0.36 of a cent. It has gained about 20 per cent so far this year.
Mark Lévesque, senior economist at the Toronto Dominion Bank, noted this latest OECD forecast basically matches private sector expectations.
"What they are doing is the same thing as everyone else is doing, that is, taking account of a very strong outlook for the U.S. but at the same time a lagged and ongoing impact of an appreciating Canadian dollar."
The OECD's warning to the Bank of Canada might, however, have convinced some currency traders that the central bank will not be cutting interest rates, Lévesque noted.
Financial markets had priced in a 50 per cent chance of easing following bank governor David Dodge's speech last week suggesting he would act if the currency continued to rise unabated.
"If you have the OECD saying they may have to hike interest rates you may some unwinding of those expectations," Lévesque said.
Also yesterday, Statistics Canada reported its industrial producer price index, which tracks prices manufacturers receive for their goods, was 3.8 per cent lower last month than October, 2002. Excluding the impact of the rising loonie, the index would have risen 0.9 per cent, StatsCan added.
with files from Reuters news agency |
