The economy is on a path to more sustainable growth. Over the past month, the effect of Bank of Canada (BoC) interest rates cuts earlier in the year have begun to wear off. Interest-sensitive sectors, such as auto sales and housing, are showing signs of slowing. Nevertheless, the economy in the second quarter still grew at a strong rate of 3.8% due to a rebound in business inventories. An improving global economy and rising business investment will drive more sustainable growth in the second half.
Moderate employment increases will continue over the next few months.
Higher oil prices and interest rates have hurt auto sales. Business investment will boost growth. After diverging in 2002, short-term interest rates in the US and Canada continue to converge. Inflation will remain tame through next year. The BoC will raise rates on September 8th. The Canadian dollar will end the year at about the same level.
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