Canada's Housing Bubble

Jan 22, 2010 banknerd.ca

The Bank of Canada governor Mark Carney has warned that the days of coming economic growth are not coming back in the years ahead, as he assessed the long term strength of the Canadian economy.

Economic growth, which achieved an average rate of nearly 3.5% in the late 1990s and early 2000s, will not be much greater than 2% beyond 2011 noted Carney.

Carney put everything down to an aging workforce and low growth in productivity as a measure of worker output that determines a society’s standard of living.

Economists have said that over a long period of time, Canadians will be facing a decline in living standards, reduced household incomes and mediocre employment prospects.

Carney explained that unless there is an increase in productivity, especially at this stage then 2% is not a realistic prospect, and with the central bank’s quarterly outlook, we are seeing productivity performance that has been relatively disappointing in the past few years.

It has been forecasted that growth will return to 2.9% this year and 3.5% in 2011, however quarterly growth will begin to drop to the 2% range in the second half of 2011 and it should stay that way into the foreseeable future.

As it stands, the Bank of Canada will stick with its commitment to maintain its key overnight rate until the middle of 2010, however if there is an increase in inflation then the rate would have to change.

The central bank has noted that global economic growth will pick up over the next two year as recovery holds firm, however the rebound in advanced industrial nations will be moderate.