OTTAWA -- The Canadian economy will continue to defy pessimists in the coming months by cranking out thousands of new jobs and increased investment, two new reports suggest.
The economy may even be able to maintain its robust performance without seeding the inflation that poses a prime long-term threat.
The reports from the Bank of Canada and Conference Board of Canada show companies are operating at close to full tilt -- especially in Western Canada and the services sector -- and plan to invest heavily to increase production and fatten payrolls.
The Bank of Canada´s latest quarterly business survey suggests that Canadian companies themselves are expecting sales, employment and investment to post strong growth in the coming months, with only the troubled manufacturing sector sticking up as a speed bump.
But the central bank´s spring survey of 100 companies also found that the rosy results do not seem to have caused any undue concern about inflation that could lead to interest rate hikes that would in turn likely curtail growth. Companies say they expect input prices to rise more slowly over the next 12 months, while output prices are expected to grow at rates similar to those of the past year.
Expectations for consumer price inflation are unchanged from the survey three months earlier. Most respondents (88 per cent) said they expect price increases to remain within the central bank´s target range of between 1 per cent and 3 per cent.
The Conference Board says in its spring outlook that Canada, buoyed by the strongest four-month run of new jobs since 2002, is expected to post growth of 2.8 per cent this year. Although tight labour markets will likely prevent employment growth from maintaining its torrid pace throughout the entire year, the board´s report says, domestic demand should remain strong.
While consumers received many dividends from last year´s growth through tax cuts, provincial governments are expected to be this year´s big winners. Ottawa will add to their windfalls by transferring $39-billion to the provinces and territories over the next seven years.
"A whopping 210,000 jobs have been created since November," said Pedro Antunes, the board´s director of forecasts. "Although consumers will not receive much in the way of new tax cuts compared to 2006, they will continue to have money in their pockets from new employment and strong wage gains."
There were, however, notes of caution.
The bank´s report took on a slightly more hawkish tone by noting pressures on production capacity will "remain at comparatively high levels."
"The latest survey results are more upbeat than expected," wrote Douglas Porter, deputy chief economist for BMO Nesbitt Burns Inc. "However, the major source of relief from the Bank´s perspective is the restrained price readings."
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