Our biggest trading partner, the U.S.A, is experiencing a slowdown, and so we lost some momentum as well. But, according to the Governor of Bank of Canada, David Dodge, this is only a short-term thing, a normal soft turn in the otherwise very healthy cycle.
Canadian exporters to the U.S. are surely feeling the pain. However, Canadian consumers are spending at their usual rate, while business investment is expected to keep on sustaining the economy. Supporting his expectations with concrete figures, Governor Dodge confirmed the GDP annualized growth rate for the third quarter of two percent, 2.8% for the entire 2006, 2.5% for 2007, and finally a more respectable 2.8% for 2008.
As far as core inflation goes, it is supposed to stay tame at slightly more than two percent, but eventually slowing back down even further. By the same token, total inflation will remain lower than core inflation for at least the first six months of 2007. Meaning, there will be no need to intervene with increasing interest rates. In fact, to prevent the economy from stalling, interest rates are more than likely to go up than down–a prediction that even Bay Street agrees with.
But don’t think that the Governor’s business is over, that he can now sit down and relax until summer. According to Governor Dodge’s own promises, there is plenty to be done in Canada’s labor markets, which need to be more flexible and efficient, imitating financial markets in that respect. Our world is changing on global levels and Canada needs to keep pace.
On the international scene, Governor Dodge pledged again his support for a more efficient and streamlined International Monetary Fund (IMF), building it to be one of the more powerful tools in maintaining order in the global financial markets. And while I would ordinarily cringe upon hearing words “maintaining world order,” I have to admit the world cannot afford financial crises the magnitude of a Great Depression, for example. At the moment, there isn’t a global body capable of a grand scale surveillance function other than the IMF.
So, all in all, Canadian economy, although slowing down a bit, is just taking a breather, nothing more, and nothing less.