A healthy rebound in Canada's growth and trade won't sway the Bank of Canada to move on interest rates in the coming week, as the economy grapples with a record-high dollar, mounting geopolitical risks and slowing inflation, economists say.
Statistics Canada kicks off the week with its report Monday on gross domestic product, the pulse of economic growth, which is expected to show a significant recovery in the fourth quarter. Analysts are calling for a 3% advance after the third quarter's anemic 1% pace.
"In a complete turnaround, Q4 growth will be led by a snap-back in net exports, as sales abroad were boosted by a revival in U.S. spending as well as ramped up energy exports," said BMO Capital Markets deputy chief economist Douglas Porter.
Porter is also calling for the year's growth to come in at a reading of 3%, a figure he called "light years away" from the 2.5% plunge recorded in 2009, the second worst year for the Canadian economy in the past 50 years.
The consensus call for December's monthly reading is for a 0.3% advance.
Also on Monday, Statistics Canada releases its report on the country's current account, considered the broadest measure of trade.
"After spending the first three quarters of 2010 falling further into deficit, Canada's current account is expected to narrow dramatically in the fourth quarter to $9.4 billion," from $17.5 billion the quarter before, said David Tulk, senior strategist at TD Securities.
"Much of this improvement can be attributed to the dramatic improvement in the merchandise trade balance, which moved into a surplus position in December," Tulk said.
With the stage set by the GDP and current account reports, the Bank of Canada takes the stage Tuesday. Economists are calling for central bank governor Mark Carney to keep the key lending rate steady at 1%.
"While growth in the U.S. and Canada has taken on a healthier glow in recent months, core inflation has moderated further (to just 1.4% year-over-year in January), the Canadian dollar remains stubbornly above parity, and Europe's debt drama has hardly abated," Porter cautioned.
As well, with the Libyan-driven spike in energy prices posing a threat to the global expansion, "we believe that at the very least, this will keep the bank on the sidelines until the second half of the year," Porter said, adding that the central bank is unlikely to give any hints or suggestions that a return to rate hikes is imminent.
