In general, indicators of the Canadian economy over the past month still point to respectable performance in 2003. Monthly gross domestic product (GDP) by industry grew 0.2% in February, while January was revised upward to 0.5%. The index of leading indicators rose 0.2% in March and is up 4.7% over the previous year.
The weakening US economy, sharp appreciation of the CAD, and SARS will debilitate the Canadian economy more than expected this year. Technical factors explain most of the weakness in recent economic indicators. Growth in the manufacturing sector is slowing due to a higher CAD and weaker US economy.
The effects of SARS will be mostly felt in the second quarter, and be partially offset in the fourth. The trade surplus will begin to decline over the next quarter. SARS will lower economic output this year by about 0.2%. The Bank of Canada is currently on hold after recently raising rates. Long-term interest rates will not rise significantly by year-end.
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