OTTAWA - Canada's economy is bouncing back faster than previously thought, the Bank of Canada said Thursday.
Backing up its controversial declaration last July that the recession is over, the central bank now says that not only has growth returned to the Canadian economy after three quarters of sharp contraction, it is growing faster than even it thought likely.
In July, the bank had projected the economy would rebound by 1.3 per cent in the current quarter and another three per cent in the final three months of the year -- or about 2.15 per cent on average.
It gave no new estimates, but the revision means that the central banks believes the economy will perform better than the 2.3 per cent contraction it had earlier forecast, and possibly better than the three per cent growth it expected for next year.
The new projections, however, haven't made the bank change its mind about keeping interest rates at the lowest possible level of 0.25 per cent until at least July, despite repeating its now familiar warning that the persistent strength of the loonie could throw an unwelcome spanner into the works.
Last July, governor Mark Carney made news and ruffled a few feathers in being one of the first to declare the recession over, an announcement that not even the federal government was willing to openly back.
Most of the optimism was based on the belief that massive government stimulus, along with the impact of central bankers keeping interest rates low and supporting financial institutions, is starting to have traction on the economy.
Now Carney says there is evidence the private sector is also joining in on the revival.
"Stimulative monetary and fiscal policies, improved financial conditions, firmer commodity prices, and a rebound in business and consumer confidence are supporting domestic demand growth in Canada," the bank writes.
"Combined with recent information on inventory adjustments and automotive production, this suggests that GDP (gross domestic product) growth in the second half of 2009 could be stronger than the bank projected in July."
Given the warning about the dollar, the bank still believes the export sector of the country is still not out of the woods.
Carney began warning that the a high loonie could derail growth back in June and since then, he or his deputies have reiterated the concern.
Few economists believe the governor is truly prepared to intervene, however, and Thursday's language does not move the goal post from where deputy Timothy Lane put in two weeks ago when he suggested the bank was prepared to use quantitative easing -- increasing the money supply -- to restrain the loonie.
"In its conduct of monetary policy at low interest rates, the bank retains considerable flexibility, consistent with the framework outlined in (April)," the Thursday statement read.
The dollar closed at 92.51 cents on Wednesday, but many economists believe it is again headed to parity.
