According to the Bank of Canada’s quarterly report, economic growth to the Canadian economy may thin out in the next 12 months following stress from the European Union financial crisis and a severe slowdown in its trading partner, the US.  As a result, policymakers have accounted for slower than expected growth, revising forecasts to 1.8% average over the next four quarters.  The figure is disappointing when considering central bankers were expecting a healthier 2.8% pace of expansion in the world’s tenth largest economy.

The results were widely expected following yesterday’s interest rate decision by the Bank of Canada.  Governor Mark Carney and his fellow bankers kept the central bank’s target overnight cash rate at a low of 1% – citing downside risk potential for the Canadian economy in the near term.

However, the report did note that potential growth for the country may be around the corner.  Given that European leaders can contain the crisis, the country’s inflationary outlook looks healthy – with a potential to rise back to 2%.  The level is the minimum under the central bank’s mandate.  Subsequently, the economy is expected to return to healthier growth in about two years.  Incidentally, the report did not take into account potentially positive effects of an Obama jobs plan.

These findings are likely to keep central bankers on an extended interest rate pause in the coming quarters – especially with the current state of growth.  The news helped to keep the Canadian dollar weaker against the US dollar in Asian session trade, currently at 1.0041.