OECD Says Canada to Lead G7

The Organization of Economic Co-operation and Development (OECD) said Tuesday that it expects Canada will lead all G7 countries in economic growth for the first half of 2011. According to the OECD, the Canadian economy will expand by about 5.2 percent for the first quarter ended March 31st, and suggests further growth of 3.8 percent for the second quarter.

The OECD also upgraded its forecast for Germany putting it second behind Canada with predicted growth of 3.7 percent for the first quarter, followed by France at 3.4 percent, and the United States at 3.1 percent. The OECD declined to provide a prediction for Japan given the recent events, but overall, the OECD says the G7 economies are performing better than earlier expected.

As a leading exporter of resources, Canada continues to benefit from stronger commodity prices especially crude oil prices which are at a two-year high. In January and February alone, Canada added over 84,000 new jobs and if the employment report scheduled for release this Friday comes in as expected, Canada could add another 30,000 new positions. As a result, the unemployment rate is expected to fall to 7.7 percent from 7.8 percent as of the end of February.

In addition to an improving job market outlook, the Canadian dollar is also benefitting from a growing tolerance for investment risk. The dollar – known as “the loonie” because of the waterfowl image on the reverse of the dollar coin – traded at 96.70 U.S. cents on Tuesday to match the highest price for the loonie against its American counterpart since November 2007.

The downside of the currency appreciation of course is that it makes Canadian exports more expensive for buyers who must exchange weaker currencies into Canadian dollars. The Bank of Canada – which is scheduled to announce its next interest rate announcement on April 12th – noted the “considerable challenges” exporters face from a strengthening loonie in a policy statement released on March 1st.

Most analysts believe the Bank of Canada’s April statement will leave interest rates unchanged at one percent, but there is a growing recognition that the Bank will be forced to hike rates later in the year to contain inflation.

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