Close X
Wednesday, November 27, 2024
ADVT 
International

Central Bank Boosts 2016 Growth Outlook After Federal Spending, Holds Rate

Darpan News Desk, 13 Apr, 2016 11:53 AM
    OTTAWA — The Bank of Canada says the federal government's multibillion-dollar spending boost has uplifted what would have been a modest downgrade to its economic growth forecast this year.
     
    The central bank also kept its trend-setting interest rate locked at 0.5 per cent Wednesday.
     
    The bank expects the federal investments of about $25 billion over the next two years to more than offset the negative consequences of a slightly stronger dollar, weaker-than-expected global growth and shrinking investment in the oil sector.
     
    It is now predicting the country's real gross domestic product to expand by 1.7 per cent in 2016, up from its January expectation of 1.4 per cent.
     
    The bank said unexpectedly strong growth in the first three months of 2016 was partly due to temporary factors and that is expected to fade with the loonie's recent rise and slower international demand.
     
    "The combined effect of all these global and domestic developments would have been a modest downgrade of the bank's outlook," the bank said in a statement that accompanied the latest release of its quarterly monetary policy report.
     
    "However, the fiscal measures announced in the March federal budget will have a notable impact on GDP."
     
    It is now predicting first quarter GDP to register 2.8 per cent, up from one per cent. It's also anticipating one per cent growth in the second quarter of 2016, down from the January forecast of 2.2 per cent.
     
     
    Using the same baseline numbers in Ottawa's recent budget, it projected federal and provincial government spending to combine to contribute 0.5 percentage points to growth this year and 0.6 percentage points in 2017. The impacts of provincial measures are expected to be minimal.
     
    But even with the government lift, the bank lowered its 2017 growth projection to 2.3 per cent from 2.4 per cent. That's because non-resource exports, while strengthening, aren't expected to be as robust as previously thought due to the recent increase in the dollar.
     
    Following the announcement, CIBC chief economist Avery Shenfeld wrote in a note that governor Stephen Poloz had no choice but to raise the 2016 forecast since his boss, Finance Minister Bill Morneau, has been "touting the benefits of fiscal stimulus" and because the economy saw surprisingly sturdy GDP growth in December and January.
     
    "With that in mind, this was about as small a forecast upgrade as they could have chosen," Shenfeld wrote.
     
    For 2018, the bank is expecting growth of two per cent, a projection that doesn't account for the potential impact of federal spending measures.
     
    This was the Bank of Canada's first monetary policy report since the Liberal government tabled its March 22 budget, which contained billions of dollars worth of spending measures and tax relief.
     
    To help fund the plan, the budget projected five straight annual deficits totalling more than $110 billion, starting with shortfalls of $29.4 billion in 2016-17 and $29 billion in 2017-18.
     
    The Finance Department estimated the Liberal budget, which includes measures to enhance infrastructure investments and tax relief for middle- and low-income households, will generate economic growth of 0.5 per cent this year and one per cent in 2017-18.
     
    The Bank of Canada based its assessment on Finance's growth assumptions, which it considered reasonable.
     
    The differences between how the impacts of the fiscal measures between the Bank of Canada and Finance were mostly due to how they were presented. For example, the bank's numbers were based on calendar years, while the Finance projections were presented in fiscal years.
     
     
    The bank's report Wednesday listed several federal measures it called "notable" for their likely impact on GDP growth. Without going into details, it highlighted the enhanced child benefit plan, environmental projects, programs to improve the socio-economic conditions for indigenous peoples and investments in affordable housing.
     
    The report was released after several recent indicators have suggested the economy is gaining momentum.
     
    The bank, however, remained cautious about the developments, though it does expect the negative factors hurting the resource sector to gradually fade, with their impact on overall economic growth to diminish through 2016.
     
    It also said non-commodity exports in sectors that are sensitive to exchange-rate movements have gained momentum.

    MORE International ARTICLES

    Donald Trump Considers Paying Legal Bills For Man Charged At Rally

    Donald Trump Considers Paying Legal Bills For Man Charged At Rally
    When asked whether he'd financially back the supporter, who was arrested and charged with assault, Trump says he's "instructed my people to look into it, yes."

    Donald Trump Considers Paying Legal Bills For Man Charged At Rally

    Stolen Ancient Jain, Hindu Statues Worth $450,000 Seized In USA

    Stolen Ancient Jain, Hindu Statues Worth $450,000 Seized In USA
    The statues seized Friday by Homeland Security Investigations (HSI) special agents in "Operation Hidden Idol" were of Rishabhanata, the first Jain Thirthankar, and of Revanta, a son of God Surya

    Stolen Ancient Jain, Hindu Statues Worth $450,000 Seized In USA

    Donald Trump Calls Off Rally Due To Security Concerns

    Donald Trump Calls Off Rally Due To Security Concerns
    Republican presidential candidate Donald Trump cancelled one of his signature rallies on Friday, calling off the event due to safety concerns after protesters packed the arena where he was scheduled to speak.

    Donald Trump Calls Off Rally Due To Security Concerns

    Family Of Teacher Jailed In Indonesia Says Federal Officials Taking Case Seriously

    Family Of Teacher Jailed In Indonesia Says Federal Officials Taking Case Seriously
    Last month Indonesia's high court overturned Neil Bantleman's acquittal of charges of sexually abusing children and he was put back in prison.

    Family Of Teacher Jailed In Indonesia Says Federal Officials Taking Case Seriously

    Sophie Gregoire-Trudeau, Michelle Obama Team Up To Promote Education For Women, Girls

    Sophie Gregoire-Trudeau, Michelle Obama Team Up To Promote Education For Women, Girls
     The meeting of Prime Minister Justin Trudeau and U.S. President Barack Obama wasn't the only mutual admiration society on display Thursday in Washington.

    Sophie Gregoire-Trudeau, Michelle Obama Team Up To Promote Education For Women, Girls

    Dubai Official Warns Of 'Clash Of Civilizations' Over Donald Trump

    Trump said he wouldn't stoop to being "politically correct" by avoiding such statements.

    Dubai Official Warns Of 'Clash Of Civilizations' Over Donald Trump