OTTAWA, Canada – Canada’s central bank, as anticipated, yesterday maintained its key lending rate at one per cent, saying it expects a “brief recession” in Europe and weak US growth.

Although growth in Canada rebounded in the third quarter, the Bank of Canada said its outlook for the Canadian economy has weakened since July due to a “significantly less favourable” external environment.

“The global economy has slowed markedly,” the central bank said in a statement.

Financial market volatility has increased and the combination of ongoing de-leveraging by banks and households, fiscal austerity and declining business and consumer confidence is likely to restrain growth across advanced economies.

The bank now expects that “the euro area — where these dynamics are most acute — will experience a brief recession,” it said.

US gross domestic product (GDP), meanwhile, is expected to be weak through the first half of 2012 before gradually strengthening.

Japan will see a boost over 2012-2013 as it rebuilds from the tsunami, but its economy also will be constrained by reduced global activity and a sharp appreciation of the yen, the central bank predicted.

Meanwhile, growth in China and other emerging-market economies is projected to moderate to a “more sustainable pace”.

In Canada, the economic momentum has slowed and is expected to remain modest through the middle of next year. The bank projected that the economy would expand by 2.1 per cent in 2011, 1.9 per cent in 2012, and 2.9 per cent in 2013.

Inflation is expected to plateau by mid-2012 before rising to the bank’s 2.0 per cent target — used for setting its key lending rate — by the end of 2013, it said.

AFP