Canadian economic growth moderated towards the end of the year, but there are signs of a bounce back this quarter. The Canadian economy remains sound labor market conditions other than in manufacturing are strong, retail sales are encouraging, and the trade surplus robust. Inflation is benign, but not out of the picture. So, the BoC is likely to raise its target rate to 4.0% by end-April, but the economy will continue to post around 3% real growth.
November�s GDP growth was mostly due to the service sector and January saw robust job gains, except in manufacturing. Retail sales are strong, as is housing, but moderating. The December trade surplus was the second highest on record. Inflation is benign, but still present. The end-2006 10-year bond yield is forecast to be 5.0%.
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