* Composite leading indicator leaps to near 27-year high
* Bank of Canada holds rates, tweaks 2010 growth forecast
* Private investment spending seen as weak spot
By Ka Yan Ng
TORONTO, Jan 19 Strong economic data and a
central bank growth forecast suggested on Tuesday that Canada's
recovery from recession is on track, though soft private sector
demand and a buoyant currency were seen as risks.
Canada's composite leading indicator put up an unexpectedly
strong performance in December, and stretched its streak of
gains to seven months, in the latest sign that the worst of the
recession is over. [ID:nN19209717]
The Bank of Canada trimmed its 2010 growth forecast
slightly but it still predicted the economy would grow 2.9
percent this year, boosted by increased confidence, improved
financial conditions, global growth and better export prices.
The central balanced that view by cautioning about the
considerable slack in the economy, lack of private sector
stimulus so far in the recovery, and the unfavorable impact of
a strong currency on exporters.
Canada exited recession in the third quarter, but barely,
though fourth-quarter data has shown more bounce. In addition
to predicting growth this year, the Bank of Canada raised its
growth forecast for 2011, when it expects private sector demand
to drive the economy.
The bank will provide more details in Thursday's Monetary
Policy Report (MPR), the bank's quarterly economic projection,
and in an ensuing press conference by Governor Mark Carney.
"While some of the economic deck chairs get moved about in
the post meeting statement, the general thrust of the Bank of
Canada thesis remains consistent with what was seen in
October's MPR," said Stewart Hall, an economist at HSBC
The Bank of Canada's rate announcement and pledge to keep
its conditional commitment to low interest rates until the end
of the second quarter came on the heels of the strong leading
The indicator soared 1.5 percent in December, the biggest
month-on-month increase for almost 27 years, spurred by
household spending and a surging stock market, Statistics
It handily beat forecasts for a 1.0 percent increase in the
index after November's 1.3 percent rise, and for the second
consecutive month, none of the index's 10 components fell.
PRIVATE INVESTMENT SPENDING SEEN WEAK
While the economy appears to be gaining traction with a
brighter outlook than this time last year, the Conference Board
of Canada said on Tuesday the recovery remains "muted".
It said government spending would play a major role in the
country's economic growth this year, which it pegged at 2.8
percent after an estimated 2.5 percent contraction in 2009.
"Fiscal stimulus by government is expected to bolster the
economy and will compensate for soft growth in private sector
investment and exports," said Pedro Antunes, director of
national and provincial forecasts at the Conference Board of
"Propped up by low borrowing rates and rising confidence,
consumers will loosen their purse strings in 2010," he said.
The Conference Board of Canada agreed with the Bank of
Canada's assessment that private investment spending is
expected to be the weak point of the domestic recovery.
Last year, companies slashed investment in structures and
machinery due to reduced cash flow, weak demand and tight
credit conditions, the Conference Board said in its Winter
It said industry is still running at record low capacity
despite improving business conditions. It predicted private
investment will grow by 3.4 percent in 2010.
(Editing by Jeffrey Hodgson and Peter Galloway)