April 18 (Bloomberg) -- The Bank of Canada said the economy will be stronger this year than it earlier forecast as companies become more confident in U.S. growth and as risks from Europe’s debt crisis diminish.
The world’s 10th largest economy will expand 2.4 percent in 2012, up from a January projection of 2 percent, the central bank said today. It raised its outlook for the contribution from corporate investment to 0.9 percentage point from 0.6 percentage point, and boosted the consumption estimate to 1.3 points from 1.1 points.
The brighter forecast underscores signs of optimism for the world economy after the International Monetary Fund raised its global growth outlook and as officials gather in Washington to consider boosting the IMF’s crisis-fighting war chest. The Bank of Canada yesterday decided to keep the benchmark lending rate at 1 percent for a 13th meeting, while adding that a policy-rate increase “may become appropriate.”
“Recent indicators suggest better growth in the U.S.,” said Charles St-Arnaud, an economist with Nomura Securities International Inc. in New York. “In Europe, we have avoided the worst, but we are still not out of the woods in terms of sovereign tensions.”
The global economy will expand 3.2 percent this year, the Bank of Canada said. The U.S. economy, which buys about 75 percent of Canada’s exports, will grow 2.3 percent this year, up from an earlier forecast of 2 percent. Europe’s economy will contract 0.6 percent this year, the bank projected, less than an earlier prediction of 1 percent.
“The external headwinds facing Canada have abated somewhat,” the central bank in Ottawa said in its Monetary Policy Report. The U.S. is benefiting from employment and stock-market gains that are building confidence, while European policy makers have taken steps to manage the risks from the sovereign-and banking-debt crisis.
The Canadian dollar traded near a one-month high after today’s report, strengthening as far as 98.82 cents per U.S. dollar. It traded at 99.12 cents at 5 p.m. in Toronto, 0.1 percent weaker from yesterday.
Elsewhere, British jobless claims rose 3,600 in March to 1.61 million, the Office for National Statistics said in London. The median forecast of 29 economists in a Bloomberg survey was for a gain of 6,000. Unemployment as measured by International Labour Organization methods dropped to 8.3 percent in the quarter through February from 8.4 percent.
China Home Prices
In China, home prices fell in a record 37 of 70 cities tracked by the government in March as officials pledged to keep restrictions on property purchases that have sapped buyer demand.
Chinese authorities should continue with other steps to make their economy more resilient, such as the decision earlier this month to widen the yuan’s trading band against the dollar for the first time since 2007.
That move “creates the possibility of additional flexibility in the currency, so it’s a step, but we’d like to see additional flexibility in the currency,” Carney told reporters today. “There is also a commitment as part of the G-20 process of Chinese authorities to slow the pace of reserve accumulation and we’d like to see progress on that.”
The International Monetary Fund raised its global growth forecast for the first time in more than a year yesterday, with the U.S. leading the improved outlook. The world economy will expand 3.5 percent this year, compared with a January projection of 3.3 percent, the IMF said.
Canada’s economy will grow at a 2.5 percent annualized pace this quarter, up from a January estimate of 1.8 percent, the Bank of Canada said. Inflation will average 2 percent this quarter, higher than a previous estimate of 1.5 percent.
Inflation, which was 2.6 percent in February, has exceeded the bank’s 2 percent goal for 15 straight months, in part because of higher oil. Crude oil prices have increased by 18 percent over the last six months through yesterday, based on New York Mercantile Exchange contracts.
Canada’s status as an oil exporter isn’t translating into net economic benefits, the central bank said. That’s because the rise in the benchmark West Texas Intermediate price paid to exporters has lagged the cost of Brent oil. Most of Canada’s oil is produced in western Canada and exported, while factories in eastern Canada consume imported oil.
“If sustained, these oil price developments could dampen the improvement in economic momentum,” the central bank said.
Reports this month have shown 82,300 new jobs were created, while housing starts ran at a 215,600 annual rate in March, both the fastest since 2008.
The bank said Canada’s economy was operating about half a percentage point below its full capacity in the first quarter. The January report said the gap was about 0.75 percent in the fourth quarter.
To contact the reporter on this story: Greg Quinn in Ottawa at email@example.com