US slowdown cutting into Canadian exports

Paulb pointed out this article in todays Globe and Mail about the drag that the US Slowdown is putting on Canadian exports. The Bank of Canada says that slower growth in the US is expected to ‘suck the heat’ out of the Canadian economy which will balance higher inflation here. In its semi-annual outlook the BOC says that they expect inflation to reach 3% by the end of this year.

“With the U.S. slowdown now expected to be somewhat more prolonged, net exports should exert a slightly greater drag on growth in 2007,” the outlook says. “All told, the Canadian economy is expected to expand at a rate slower than potential through 2007, and in line with potential through 2008 and 2009.”

Potential is considered to be about 2.7 per cent growth annually.

Total inflation is expected to return — on its own accord — to the bank’s 2 per cent target by mid 2008, the bank said, but will peak at about 2.8 per cent in the fourth quarter of this year.

Core inflation — which excludes food, energy and other volatile items — will remain above 2 per cent for a few months, returning to target by the end of 2007. Although housing prices are no longer a concern to the bank, capacity pressures will keep core inflation high.

I’m always suprised at how specific they get with their predictions – How has their track-record been for previous BOC outlooks?