Canada’s economy will weaken next year forcing the Bank of Canada to reduce interest rates, according to a forecast by Laurentian Bank.
The Canadian economy is in the midst of a significant slowdown that is expected to be relatively short-lived. Economic growth will be just 2.3% in 2007, down from a growth rate of 2.8% this year.
However, the pace of expansion should gain some steam in tandem with the anticipated economic rebound in the United States.
Laurentian also expects the Bank of Canada will cut the overnight rate by 50 basis points to 3.75% during the second quarter, which should be just enough to ensure the economic slowdown stays moderate and short-lived.
The bank predicts that the odds of a federal election are high, which could lead to further volatility in the financial markets, notably the Canadian dollar.
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