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Deteriorating Global Economy Will Slow Pace Of Canadian Growth, Bank of Canada Says

The Bank of Canada on Tuesday kept its key interest rate on hold, warning the global economy has "deteriorated" and that will slow the pace of growth in this country.

While the Canadian economy "had more momentum than anticipated in the second half of 2011, the pace of growth going forward is expected to be more modest than previously envisaged, largely due to the external environment," the central bank said.

The bank's overnight lending rate has remained at a near-record low of one per cent since September 2010.

On Wednesday, the central bank releases its quarterly Monetary Policy Report — followed by a news conference with governor Mark Carney — which will shed more light on where policymakers see the economy heading and the likely impact on inflation.

In its October report, the bank acknowledged the global economy had "slowed markedly" and the outlook for the Canadian economy had weakened.

At that time, the Bank of Canada estimated growth in 2011 would come in at 2.1 per cent, followed by 1.9 per cent growth this year and 2.9 per cent in 2013. It said inflation was expected to ease to one per cent by mid-2012 before rising to the bank's two per cent target by the end of 2013.

Since then, the debt problems in Europe have continued to shake confidence inside and outside the region. Still, recent data has indicated the recovery in the United States — Canada's largest trading partner — had been picking up.

"The outlook for the global economy has deteriorated and uncertainty has increased since the bank released its October Monetary Policy Report," the bank said. "The sovereign debt crisis has intensifies, conditions in the international financial markets have tightened and risk aversion has risen. The recession in Europe is now expected to be deeper and longer than the bank anticipated in October."

And it added that "while the rebound in real GDP during the second half of 2011 was stronger than anticipated, the bank expects the U.S. recovery will proceed at a more modest pace going forward, owing to ongoing household deleveraging, fiscal consolidation and the spillovers from Europe."

On Tuesday, the Bank of Canada said its outlook for the domestic economy "is little changed" from the October forecasts.

Still, the bank has slightly adjusted its forecasts, pegging 2011 and 2012 growth at higher rates of 2.4 per cent and two per cent, respectively, while lowering the 2013 outlook to 2.8 per cent.





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