Canada�s economy performed surprisingly well in face of a global slowdown. Real Gross Domestic Product (GDP) for August grew 0.5% over the previous month, ahead of an expected 0.3%. Growth in July was revised upward to 0.2% from 0.1%. The Ivey Purchasing Managers’ Index (PMI) was at 56.5 for October, indicating solid growth. These positive indicators pushed the Canadian dollar up 5.3% in the past month to a value of USD 0.84, a level not seen in over a decade. Real GDP growth will surprise at 3.0% this year and 3.4% in 2005. The current strength in the indicators and the view that the economy is operating close to potential will compel the Bank of Canada (BoC) to raise interest rates two times, by 25 basis points, before the end of the first quarter of 2005.
Canada�s economy is strong � real GDP growth will be 3.4% next year. Manufacturing slipped in September, but will continue to improve. Job growth shows no sign of slowing. The housing market has cooled, although from a high level. Retail sales continued to grow in September.
The Canadian dollar has surged, even as the interest rate differential has fallen. The Canadian dollar will continue to rise. The stronger currency will hurt net exports, but mitigating factors will limit its impact.
The Bank of Canada will raise rates twice by the end of Q1 2005. Canadian fiscal surpluses will reduce the long-term interest rate spread with the US.
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