A Bank of Canada report says Canada's economy should be running at full capacity in about two years.
For now, however, the BoC is painting a mixed national economic picture.
In its July Monetary Policy Report Update, the BoC said that economic growth in the first quarter of 2008 was weaker than expected. But the "final domestic demand -- supported by strong terms of trade -- continued to expand at a solid pace," said a press release highlighting the BoC report.
The BoC report noted Canada's economy continues to be affected by three major developments:
- the U.S. economy
- ongoing turbulence in world financial markets
- sharp increases in some commodities prices, notably energy prices
"I would say that the global situation is difficult ... These three main developments affect the situation, but the Canadian economy remains robust," Bank of Canada Governor Mark Carney said.
Carney said Canada benefits from the rising cost of oil and natural gas, and the economic benefits aren't limited to just energy producing provinces such as Alberta.
"There are variety of industries that feed into the energy industry, including manufacturing industries in Ontario and other areas of Central Canada. There are wealth effects in portfolios. There are wage effects for secondary and tertiary industries spread across the country," he said.
"And that puts us, in the industrialized countries, in very rare company."
BNN's Michael Hainsworth said BoC's report had mostly positive implications for Canadians, despite the gloomy short-term forecast.
"The cost of being Canadian will rise substantially heading into the Christmas holidays," he said. "But that's the end of the bad news. The good news is that since inflation is going to slow as we go into 2009, once everything is said and done, we will be doing pretty well."
The BoC report noted that high terms of trade, along with accommodative monetary policy and a gradual U.S. economic recovery, are expected to create above-potential growth in 2009.
The report said 'available evidence" suggests that the economy has generally recovered from a first-quarter dip, growing by 0.8 per cent in the second quarter. The growth will continue this year, rising to 1.8 per cent in the fourth quarter. The first half of 2009 will see a 2.8 per cent growth rate, according to the bank.
The report also noted that the inflation rate will rise in the coming months and peak early next year at 4.3 per cent. But it will drop back to two per cent by the end of 2009.
Hainsworth said that a BoC hike in interest rates is likely to occur in 2009.
The economy should be "back to full capacity around mid-2010," said the BoC release.
With files from The Canadian Press
