OTTAWA—The Bank of Canada has warned that Europe is almost certainly headed towards another recession—albeit a brief one.
As gloomy as it is, that was the bank’s base-case scenario and it assumes the euro-area crisis will be contained. It offered no analysis on what will happen if it isn’t.
Canada’s economy is currently feeling the impact of slower growth in Europe, the U.S. and even emerging nations.
“Although Canadian growth rebounded in the third quarter with the unwinding of temporary factors, underlying economic momentum has slowed and is expected to remain modest through the middle of next year,” the bank says.
It estimated Canada’s economy likely grew a modest 2.1 per cent this year—most of it in the first quarter—but will slow to 1.9 per cent next year.
Both numbers were 0.7 percentage points less than the bank had projected in July.
And a return to normal growth is a long way off, the bank suggests.
Constrained by lower demand for exports, a high dollar, falling commodity prices, skittish markets and a more cautious consumer, the bank expects it won’t be until the end of 2013 before the economy returns to full capacity, with an average growth rate of 2.9 per cent – more than four years after the official end of the 2008-09 recession.
The bank has kept interest rates to stimulate the economy in the face of a daunting global economic environment and the inevitability of a European recession.
While the rate decision was no surprise, the tone of the bank’s unusually long accompanying statement was darker than some expected, despite economists calling on governor Mark Carney to revise the summer’s more sunny forecast.
Apparently, the bank’s policy team took the advice to heart.
Not only is growth braking dramatically in the industrialized world, China and other emerging nations can be expected to lower their sights for the near future.