Bank of Canada Senior Deputy Governor Tiff Macklem said while growth in the economy is slower than policy makers had expected, the expansion will accelerate this year.
“Near-term momentum now appears to be slightly softer than previously anticipated,” Macklem, 51, said in a lecture today at Queen’s University in Kingston, Ontario, the last scheduled public remarks from a Bank of Canada policy maker before the Jan. 23 interest rate decision. “We continue to expect economic activity to pick up through 2013.”
The central bank’s key interest rate has been at 1 percent since September 2010 in the longest pause since the 1950s with a strong currency and inconsistent global demand blunting exports. Macklem and other policy makers have indicated since April they may raise borrowing costs as the economy nears full output -- language that didn’t appear in today’s remarks.
Economists surveyed by Bloomberg News predict a rate increase in the fourth quarter, a time frame that may put the decision in Macklem’s hands with Governor Mark Carney leaving in June to lead the Bank of England.
The Bank of Canada’s board of directors this week started the formal process to replace Carney by placing newspaper ads and hiring a recruitment company. Economists including Toronto- Dominion Bank’s Craig Alexander say Macklem is Carney’s most likely successor.
Most of Macklem’s remarks today reiterated the risks from record consumer debt loads and weak export growth. Household balance sheets are “stretched” and there are early signs of a “gradual correction,” he said.
“Housing activity is beginning to decline broadly in line with our expectations,” Macklem said. “Canadian exports are expected to add to GDP growth, but continue to be restrained by weak foreign demand and ongoing competitiveness challenges.”
The Canadian dollar’s persistent strength is also a drag on exports, Macklem said, adding that companies need to regain competitiveness and not rely on a weaker currency.
Output growth slowed in the third quarter because of “transitory disruptions” in the energy sector, Macklem said.
Gross domestic product growth slowed to a 0.6 percent annualized pace in the third quarter and the Bank of Canada’s October forecast predicted a rebound to a 2.5 percent pace at the end of last year.
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