Mark Carney, Governor of the Bank of Canada, holds a press conference to discuss the contents of the Monetary Policy Report at the National Press Theatre in Ottawa on Wednesday, October 26, 2011. THE CANADIAN PRESS/Sean KilpatrickSean Kilpatrick/THE CANADIAN PRESS/The Canadian Press
The economy grew at an annual pace of at least 3 per cent between July and September, after shrinking in a second quarter marred by a storm of one-time setbacks, Statistics Canada is expected to report on Wednesday.
Early indications also suggest the economy's performance in the current quarter will turn out better than the 0.8-per-cent growth rate the Bank of Canada pencilled in when it released its latest projections in late October.
The outlook beyond that, however, is clouded by an unusual amount of risk and uncertainty.
In a semi-annual forecast to be released on Monday, the Organization for Economic Co-operation and Development predicts decent if unspectacular growth for Canada in 2012, at 1.9 per cent, and in 2013, when gross domestic product will increase by 2.5 per cent.
But like most forecasts these days, these numbers come with a caveat: the assumption the global recovery's current drift will be smoothly resolved. Namely, that European leaders can contain their continent's escalating crisis, that the "excessive" belt-tightening that cripples economies in the short run will be avoided, and that central banks will keep borrowing conditions loose and be ready to do more the moment it seems necessary.
"The difference between the upside and the downside scenarios reflects the impact of credible, confidence-building policy action," Pier Carlo Padoan, chief economist at the Paris-based OECD, says in a summary of the forecast. "In view of the great uncertainty policy makers now confront, they must be prepared to face the worst."
In its assessment, the OECD listed a series of risks in each country that could throw its projections off. It hinted that for Canada – as for others – an uglier scenario is more likely than a sudden dramatic improvement.
The downside risks for Canada are weaker global growth and greater market turbulence that would cause exports to slow more than anticipated, gutting business and consumer confidence; and/or a "sharp correction" in house prices that would pour more cold water on household spending, which is already slowing as families grapple with high debt.
On the somewhat less probable upside, emerging markets that now are slowing along with their key customers in the advanced world may grow faster than expected, a scenario which "could reignite commodity prices" and benefit producer nations such as Canada.
Assuming the baseline forecast holds, recent drops in commodity prices and considerable slack throughout the economy will restrain inflation, the OECD said, so Bank of Canada Governor Mark Carney should keep interest rates steady until 2013. (This is quite a departure; in its May outlook, the OECD urged Mr. Carney to raise borrowing costs within a few months to reassure consumers and businesses that he could control price gains.)
In the event global demand or the job market deteriorate further, the OECD identified essential measures to raise growth: Mr. Carney could cut the benchmark rate from the current near-emergency level of 1 per cent, and the Harper government could delay or relax its deficit-cutting plans.
Calista Cheung, the OECD's Canada desk officer, said in an interview that while the forecast comes loaded with question marks, one thing seems certain: If the U.S. and Europe both suffer deep slumps, a Canadian recession will follow.
"I don't think it's possible for Canada to escape that," she said, adding that the suggested measures likely wouldn't help Canada avoid a downturn in that scenario.
So, on Wednesday, enjoy the further confirmation that we did not, as some feared, backslide into another slump this summer. But do not for a second assume that happy days are here again.