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BMO releases economic projections

 

BMO Capital Markets Economics, the economic research and analysis division of the Bank of Montreal, released their Canadian Economic Outlook last week. The document projects Canada’s economic situation for 2012 and the remainder of 2011.

The numbers predict that the loonie will fall by roughly seven cents when compared with the U.S. dollar, unemployment will remain at around seven per cent, and the economy will continue to grow at an annualized rate of about two per cent.

According to Professor Poschke of the McGill Economics Department, these numbers can indicate several things. For example, while unemployment is projected to increase slightly, it is important to understand what the increase means in context.

“Over the last 20 years, the average [unemployment rate] has been around eight per cent. Over the last 10 years, around seven per cent. So it’s worse than recently, but okay compared to longer-run Canadian history. Also, Canadian unemployment will probably remain below U.S. unemployment for quite some time. This is rare historically,” Poschke said.

As for the change in the exchange rate, it may actually be positive for the Canadian economy.

“When the Canadian dollar is strong, Canadian products are expensive. All this matters most relative to the U.S. Now that the loonie is a bit weaker, these exporters may be happier,” Poschke said.

Poschke noted, however, that the change in the exchange rate would also mean that Canadians traveling to the U.S. or purchasing U.S. goods would now be able to buy fewer goods than they had earlier this year.

Canada’s growth rate has been close to two per cent for several years. Although the growth rate did not change much, it is trending downward slightly, which is an important indicator.

“The trend also matters: there’s a negative trend. This reflects fear of a further slowdown or renewed recession in the U.S., which would strongly affect Canada because Canada exports a lot to the U.S., so nothing terrible, but a somewhat negative outlook,” Poschke said.

Poschke did remark that the BMO projections were some of the more pessimistic outlooks presented.

“Note that there are many sources of economic forecasts, and it’s not clear whether this one is the most credible one,” he said. “It has the merit of being recent.”

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