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Canadian economy showing signs of recovery, Stephen Poloz says

OTTAWA — Bank of Canada Governor Stephen Poloz said Canada’s economic conditions are showing improvement but warned that falling oil prices will hold back growth.

As expected, the central bank kept its trend-setting overnight interest rate at 1 per cent in its rate-setting announcement Wednesday.

“Canada’s economy is showing signs of a broadening recovery. Stronger exports are beginning to be reflected in increased business investment and employment,” Poloz said in a statement accompanying the rate announcement. This trend suggests exports may help sustain a wider uptick in the economy, he said.

“However, the lower profile for oil and certain other commodity prices will weigh on the Canadian economy,” the Bank said. The statement did not contain specific analysis of the likely impact.

“The U.S. economy has clearly strengthened, particularly business investment, which has benefitted Canada’s exports,” the statement added. But “growth in the rest of the world, in contrast, continues to disappoint. Oil prices have continued to fall, due to both supply and demand developments.”

The net effect of these mixed developments is that the Canadian economy might be headed for a bit stronger growth than the central bank predicted in its quarterly forecast in October, according to Poloz.

In the July-through-September period, the Canadian economy expanded at a faster-than-expected pace of 2.8 per cent on an annualized basis. But the Bank of Canada had said it expects overall growth for 2015 to come in at about 2.5 per cent before slowing gradually in 2016 to the 2-per cent range.

But the central bank noted Wednesday that the weak labour market continues to indicate significant slack in the economy.

Since mid-July crude oil prices have plunged 30 per cent and are hovering around $ 69 (U.S.) a barrel. The lower price will have a widespread impact on Canadian business conditions. Oil-producing provinces such as Alberta, Newfoundland and Saskatchewan will take a hit economically, a development that will significantly reduce provincial and federal tax revenues. But Ontario and Quebec may see an improved performance by manufacturing industries as a result of cheaper energy bills and the lower Canadian dollar, which makes exports more cost-competitive in the all-important U.S. market.

The central bank has kept its trend-setting overnight rate at the unusually low rate of 1 per cent since 2010 as monetary authorities have waited for the U.S. and other major economies to rebound from the 2008-09 recession and propel the global economy into a period of sustained growth.

The next scheduled date for the Bank of Canada to announce the overnight rate target is Jan. 21.


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