TORONTO — Canada’s economy will grow at a fair clip in 2010, but not fast enough to persuade the Bank of Canada to raise interest rates anytime soon, according to a quarterly Reuters poll published on Thursday.

The survey of around 20 economists, conducted over the past week, predicts the Canadian economy will emerge from recession to grow by an annualized 2.5% in 2010, in line with predictions from the same poll in October.

The poll comes as the Bank of Canada this week held its key interest rate at a record low, as expected, and changed growth forecasts only slightly, highlighting weak U.S. demand and a strong Canadian dollar as risks to the recovery.

“The growth will come as the Bank of Canada notes in its press statement from the domestic side, which is benefiting from the record low interest rates and fiscal stimulus,” said Sal Guatieri, senior economist, BMO Capital Markets.

“So we should continue to see strength in housing markets, auto sales and generally a pick up in consumer spending. As well, the upturn in commodity prices should support business investment.”

The domestic economy has been aided in part by the Bank of Canada slashing rates to an all-time low near zero, where it has pledged to keep them until the end of June next year as long as inflation stays in check.

“The risks around it though are actually to the upside. We’ve seen a number of leading indicators suggesting there could be an even sharper acceleration in the Canadian GDP at the end of 2009 and into 2010,” said Jonathan Basile, economist at Credit Suisse in New York.

On the flip side, the economic recovery scenario could moderate more than people think, Basile added.

The central bank flagged weak U.S. demand and a high-flying Canadian dollar as risks to the recovery. In a recent poll, strategists predicted the Canadian dollar could spend some time at par with the U.S. currency this year, but it is likely to weaken gradually overall.

The poll shows economic growth is not expected to be forceful enough to spark a rate hike any time soon, with the median forecast in the poll not calling for any monetary tightening until July at the earliest.

The median forecast of the poll has the Bank of Canada keeping its key rate steady at 0.25% until the third quarter, when it is expected to raise it to 0.75%. It is expected to raise the rate further to 1.25% by the end of 2010, the poll showed.

Canada’s unemployment rate will average 8.4% this year, according to the median forecast, and rise as high as 8.6% during the first half of 2010.

Housing starts are expected to average 173,000 units in 2010, up 8.5% from the 159,400 units forecast for this year in the October poll. For 2011, housing starts are forecasted to rise to 180,000 units, the median forecast showed.

Originally posted in the Financial Post

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