Despite some negative economic news, the recovery is still on track. The strong Canadian dollar will continue to dampen growth this year by limiting the benefits of healthy US growth. As a result, domestic demand, business investment and consumer spending in particular, will have to lead the economy to full output. Real Gross Domestic Product (GDP) is expected to grow 2.8% this year and 3.3% in 2005. Inflation will moderate to 1.1% this year, before accelerating to 1.7% next year. The Bank of Canada (BoC) will cut rates once more to 2.0%, before beginning to raise rates late this year or early next year.
Domestic demand will lead the economy this
year. Inventories helped fourth quarter growth to reach 3.8%. The housing market will benefit from interest rate reductions and job growth.
Full-time job growth continued in February, despite a drop in overall employment. Improved profitability, declining excess capacity, and improved balance sheets will spur business investment.
Federal fiscal surpluses will be maintained by the new budget. The government is on target to lower the Federal debt to 25% of GDP from 42% by 2014. Inflation will remain subdued until next year. The BoC will cut rates again by the end of June.
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