The Bank of Canada was expecting economic growth in Canada to speed up about now. It didn't happen, maybe due to the tough winter, and now the bank expects the speed-up to happen in the second quarter of the year -- any day now.
Bank governor Stephen Poloz used his interest-rate statement and his monetary policy report, issued Wednesday, to explain what went wrong. Basically, it is the Americans' fault. They are buying plenty of oil and gas from Canada but not much else. Canada's share of the U.S. import market has declined, the bank estimates, to about 14 per cent from about 18 per cent in 2000. For non-energy commodities and for manufactured products, the declines are much steeper.
In January, the central bank thought Canada's GDP would expand in the first three months of this year at an annual rate of 2.5 per cent. The first-quarter data are not in yet, but the predicted growth didn't happen. It scaled back its estimate to 1.5 per cent.
Severe weather slowed the U.S. economy, curbing demand for Canadian goods, Mr. Poloz explained, and together with the 14-year-long decline in Canada's U.S. market share explains why growth was weak. But the U.S. expansion has to resume sometime. The bank expects Canadian output growth at annual rates of about 2.5 per cent in the remaining quarters this year.
This rosy view would be more reassuring if the bank had not just knocked one percentage point off its growth estimate for the first quarter. A forecasting agency whose growth estimate falls so wide of the mark should show modesty about the clarity of its crystal ball.
The main thing the Bank of Canada has to worry about is inflation, and on that front it has no worries. Prices are stable these days because workers have no power to drive up their wages and companies have no power to drive up their prices in the current economic climate. Price stability, fortunately for Canadians, is taking care of itself.