Canada’s Growth Unexciting, But Fundamentals Strong

The Canadian economy has been growing at a sub-2% pace in 2012, well below last year’s pace. Indeed, growth in the third quarter was a mere 0.6% a.r. and we are forecasting that the final quarter of this year will see real GDP expand only 1.5%. For an economy very close to full capacity, this isn’t as bad as it sounds. The output gap in Canada is much smaller than in the U.S., having weathered the financial storm far better. As we approach full employment next year, growth of much more than 2% could well trigger inflation warnings, and the Bank of Canada could begin to gradually re-normalize interest rates late next year.

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