Saturday, November 20, 2010

OECD forecasts sluggish growth over next two years

Thursday, 18 November 2010

The slow North American recovery will continue according to the Organization for Economic Co-operation and Development for the next two years. It also warns that a weakening real estate market in both Canada and the U.S. poses a downside risk to the rebound.

Canada’s economy will grow 3 per cent this year, 2.3 per cent in 2011 and 3 per cent in 2012, the Paris-based OECD said in its latest outlook for member countries, and the unemployment rate will drop from 8.1 per cent this year to 7.4 per cent by 2012.

The slowdown and tepid pickup are a function of household finances being stretched, wage growth starting to moderate and government stimulus spending winding down, the OECD said, as well as global uncertainties that are restraining demand for Canadian exports.

“Substantial economic slack should gradually diminish but keep inflation pressures subdued,” the OECD report said. Even though Canadian borrowing costs are still low by historical standards, with the Bank of Canada’s benchmark rate at 1 per cent, Governor Mark Carney and his rate-setting panel “should delay further rate hikes until early 2011 when a recovery in private demand is expected to gain firmer traction,” the OECD said.

After that, “a gradual pace of tightening would be appropriate,” the report said, in keeping with what most economists predict. A “downward correction” in home prices could further crimp demand, it said.

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