Canada's recession is over, and the country is beginning what will be a long reconstruction of the wealth destroyed by the financial crisis, the Bank of Canada said Thursday.
Gross domestic product will expand at an annual rate of 1.3 per cent this quarter, compared with an earlier forecast for a contraction of 1 per cent between July and September, the central bank said in its latest monetary policy report.
The dramatic shift is the result of stronger financial conditions, surprisingly high consumer and business confidence and a first-half contraction that was less severe than the economic catastrophe the central bank was bracing for when it last published its views on the economy in April.
If the bank's new forecast proves correct, Canada's first recession since the early 1990s lasted three quarters, making it one of the shortest downturns on record.
Canada's economy was operating about 3.5 per cent below its production capacity, a hole that will take well into 2011 to fill, the central bank said. The automotive and forestry industries are restructuring, business investment is weak and unemployment continues to rise.
All that will make the recovery fragile, and explains why the central bank recommitted Tuesday to keep the benchmark lending rate at a record low of 0.25 per cent until the middle of next year.
“We believe the economy will grow this quarter,” Bank of Canada Governor Mark Carney said at a news conference. “This isn't a foregone conclusion. Policy is important. Monetary policy is important. Fiscal policy is important, and the caveat, effective implementation of policy outside our borders, remains important.”
The bank's revisions are based on a domestic economy that has weathered the global recession better than policy makers expected and confidence that the rebounds in the United States and China are about to give a lift to exporters and commodity prices.