Bank of Canada raises concerns about economy


OTTAWA – The Bank of Canada held its key interest rate target steady at 0.5 per cent, but raised concerns today about the strength of the economy after the export sector disappointed earlier this year.

The Canadian economy contracted at an annual pace of 1.6 per cent in the second quarter, faster than the 1.0 per cent pace that had been forecast by the central bank in its July monetary policy report.

The bank says the pullback was due to the Alberta wildfires in May and a drop in exports that was larger and more broad-based than expected.

However, the economy grew in June and the latest trade figures from Statistics Canada showed gains by exports in July.

The central bank says July’s strong exports were “encouraging” but adds that the ground lost over previous months “raises the possibility that the profile for economic activity will be somewhat lower than anticipated.”

The economy is expected to rebound in the third quarter as oilsands production resumes and reconstruction work begins in Fort McMurray, Alta., and the surrounding areas damaged by the wildfires.

The federal government’s new Canada child benefit program is also forecast to help consumer spending, while infrastructure spending by Ottawa is expected to lend a boost in the second half of the year.