The outlook for the Canadian economy continues to weaken due to the strong Canadian dollar. Real Gross Domestic Product (GDP) is expected to rise by only 3.0% this year and 3.2% next year. As a consequence, the Bank of Canada is now expected to be on hold until the second half of 2005. Low US long-term rates are keeping interest rates low in Canada also. Canadian rates will rise along with US rates this year, with the yield on the 10-year Benchmark Bond reaching 5.1% by year-end, 10 basis points higher than in the US.
Housing and vehicle sales continue to do well, but manufacturing is suffering. The labor market is expected sustain consumer spending this year. Inflation is benign. The Bank of Canada is on hold until the second half of 2005.
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