The Canadian economy grew 0.4 per cent in December and 1.8 per cent at a seasonally adjusted annual rate for the fourth quarter, close to BCREA’s forecast of 1.9 per cent and a marked decline from a 4.2 per cent rate of growth in the third quarter. Grwoth in Real GDP for 2011 was 2.5 per cent, a decline from 3.2 per cent growth in 2011. Significant uncertainty looms over the Canadian economy in 2012 from a yet unsettled Euro-debt crisis an improving but still sluggish US economy, and a deceleration in domestic demand.

We are forecasting Canadian economic growth to further slow in 2012 to just 2.2 per cent. Muted economic growth and ongoing slack in labour markets should keep core inflation near 2 per cent, while rising oil-prices may push headline CPI inflation higher. We anticipate that the Bank of Canada, with Europe and rising household debt at the front of mind, will look past energy related movements in CPI inflation as temporary and leave interest rates unchanged at 1 per cent in 2012.

Copyright British Columbia Real Estate Association. Reprinted with permission.