OTTAWA -- The Bank of Canada has lowered its forecasts for economic growth in the second half of 2013 and possibly for next year, citing a more prudent consumer and an export sector that has yet to fully recover.
Senior deputy governor Tiff Macklem said Tuesday the central bank no longer expects the July-September period to grow at a rate of 3.8 per cent as previously forecast.
Instead, the bank says the third quarter will likely show an economy that advanced at a more moderate pace of two per cent to 2.5 per cent, the same speed it now expects will continue in the fourth quarter. Previously, it had pencilled in a 2.5 per cent expansion for the last three months of the year.
'This is good news'
The Canadian dollar dipped on the news and closed down 0.21 of a cent at 96.85 cents U.S. on Tuesday.
The new projections were unveiled in an advance copy of a speech delivered by Macklem to a business audience in Toronto.
It was an unusual occurrence for the central bank, which normally issues new forecasts during its quarterly monetary policy reports. The next report will be issued Oct. 23.
It was unclear why the bank decided to jump the gun, other than early indicators have pointed to a more subdued bounce-back for the third quarter.
A report Monday on gross domestic product from Statistics Canada found the economy advanced by 0.6 per cent in July, a good monthly number but less than would be necessary to jump-start the quarter to a near four per cent surge.
In the speech, Macklem explained Canadians had become more cautious about spending, a welcome development given debt levels are already at record highs in relation to income.
"This is good news," Macklem said. "But this new-found and welcome household prudence is dampening growth. To replace this growth, we need a rotation in demand toward exports and business investment."
"Unfortunately, this rotation has proven elusive."
Macklem said the central bank still believes a revival in the U.S. economy will eventually lead to an increase in demand for Canadian products, but due to competitive pressures and continuing weak demand, it is taking longer than expected.
The delay has also restrained businesses from stepping up investments, a vicious negative cycle that is keeping the economy from returning to its potential.
Although Macklem did not specifically refer to 2014, the analysis suggests the bank may also be preparing to revise downward next year's 2.7 growth estimate, which many economists already consider overly rosy.
In an initial reaction to the speech, CIBC chief economist Avery Shenfeld said the bank may keep interest rates on hold until 2015.
Macklem made no mention of the U.S. government shutdown.
-- The Canadian Press