Economy Will Recover, BoC Says

(National Post – Jacqueline Thorpe)

The Canadian economy looks to have escaped a recession in the first half of 2008 and will pick up momentum through the end of the year, despite extreme turmoil in financial markets and continued weakness in the United States, the Bank of Canada said yesterday.

Still, 2008 as a whole will be the worst showing for the economy since 1992, when it was crawling out of the recession of the early 1990s, according to bank forecasts. Indeed, the bank believes growth will be weaker than what will be seen in the United States, which is facing no immediate end of troubles.

The bank said a wave of income from rising commodity prices will keep the economy afloat through the end of the year.

“Recent increases in commodity prices lead to higher wages and salaries, higher government revenues, higher corporate profits and equity valuations and stronger investment growth, particularly in the energy sector,” it said in its quarterly review of the economy.

The bank forecasts the economy will grow at an annualized pace of 0.8% in the second quarter, up from an earlier forecast of 0.3%. The economy contracted 0.3% in the first quarter. Two back-to-back quarters of declining activity are required to meet the widely accepted definition of a recession.

Businesses drew on inventories in the first quarter after importing heavily at the end of 2007. This idled factory production and weighed heavily on growth, but the bank believes this process has now been worked through and growth should bounce back in the second quarter.

But this will by no means be a stellar year for the economy. Growth is projected to be just 1% for all of 2008, its slowest rate since a 0.9% expansion in 1992.The economy is expected to bounce back more strongly to 2.3% in 2009 and 3.3% in 2010. Read the complete article.