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Why the Bank of Canada is optimistic, and often wrong, in its forecasts

Don’t count on these economic predictions


 

Adrian Wyld/CP

New Bank of Canada governor Stephen Poloz’s first policy-rate announcement last week was a largely predictable effort to stay the course set by his predecessor, Mark Carney. With little in the way of global growth expected this year, Canada’s economy is expected to remain “choppy” and interest rates will remain near historic lows. But there is one other trait Poloz inherited from Carney: a belief that things will soon get better.

The central bank predicted that Canada’s GDP will jump to 2.7 per cent next year, up from the current one per cent, as a rebound in the U.S. housing market and an end to European austerity kick-starts the global recovery.

Not everyone is buying that rosy outlook. Several private-sector economists noted last week that the bank’s economic forecasts for next year were significantly higher than their own. BMO Capital Markets chief economist Douglas Porter described the central bank as “consistently more optimistic on the growth outlook than most others.”

It wouldn’t be the first time the bank has proven overly optimistic. Back in April 2009, the bank predicted the economy would expand at a rate of 4.7 per cent in 2011. Instead, it came in at 2.6 per cent that year, as a Greek default loomed and the nuclear-reactor meltdown in Japan knocked the legs out from under the global recovery. Back then, the bank’s forecast was based on the expectation that Canadian exporters would “benefit disproportionately” from a rebound in U.S. house prices and car sales. Instead, U.S. new-home sales fell to their lowest levels ever recorded.

The bank’s early GDP forecast for 2.8 per cent growth in 2012, issued in January 2011, later proved to be well off the mark, too, due to the crisis in the eurozone. Economic signals out of Europe and the U.S. are more encouraging these days than they were back then. But with Canadian exporters still holding off on new investment (something Poloz, former head of Export Development Canada, points out in his report), it wouldn’t take much for GDP growth to disappoint. For the sake of the Canadian economy, Poloz had better hope the central bank’s got it right this time.


 

Why the Bank of Canada is optimistic, and often wrong, in its forecasts

  1. The hell? You title an article “Why the blah” and you’d think the article would have even a hint of the reasoning as to why the blah.. not just “See, it’s blah..”

  2. All forecasts are rubbish. There, I just wrote you a nice headline AND a complete article, and saved you all some trouble. Forecasting is for charlatans, and only fools make any decisions according to economic forecasts.

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