A lot of people are probably scratching their heads this morning, wondering what to make of recent economic news. For Canada at least, this news mark the return of Harry Truman’s famously feared two-handed economist.
On the one hand, Statistics Canada announced on Monday the acceleration of national GDP growth. In the first quarter of 2010 we reached a rate of 6.1% (annualized), following 4.9% in the last quarter of 2009. The 2010 Q1 result is significant for a number of reasons. First of all, this growth is not just caused by a bounce-back effect from a stagnant situation–it is the real thing. Second, the expansion is spread across all economic drivers: consumption, exports and investment. Finally, the pace we reached in the first quarter is quite impressive compared to that of the US (+3.0%) and the euro zone (+0.8%).
On the other hand, on Tuesday, the Bank of Canada took advantage of its scheduled “rate target announcement” to raise its overnight interest rate from 0.25% to 0.5%. The rate remains very low when compared to historic levels, but if the increase is just the first of a few consecutive increases, that will certainly make many pause before considering getting further into debt. In some regions of Canada, the real estate market had quickly swung back to “very hot” following the recession. Today’s announcement (and subsequent increases) could cool this down. Also worth noting, the Bank mentions that the rate hike is not related to inflation fears but more to the fact that “the global economic recovery (…) is increasingly uneven across countries”.
So, in a nutshell, are things good or bad right now? Well, things are pretty good for Canada as a whole (with some regional variations), but they will be even better once other countries catch up. Canada is dependent on other countries to sustain its growth through trade, so the imbalance in global growth matters a lot.
Posted By: Jacques Marcil