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Victor Marquez, an assembler at Standen's Limited in Calgary, grinds a heavy truck spring. (Chris Bolin/Chris Bolin For The Globe and Mail)
Victor Marquez, an assembler at Standen's Limited in Calgary, grinds a heavy truck spring. (Chris Bolin/Chris Bolin For The Globe and Mail)

Economists boost growth forecasts Add to ...

A string of stronger-than-expected reports are prompting some economists to revisit their forecasts for the strength of the recovery.

Some are now pencilling in higher forecasts after recent reports showed strength in manufacturing and wholesale trade, while retail sales continue to climb.

Bank of Montreal, for example, boosted its forecast for Canada's first-quarter gross domestic product by a full percentage point, to 4.7 per cent from its earlier expectation of 3.7 per cent. It now believes the economy will grow 3.2 per cent this year, rather than the 3 per cent it had previously predicted.

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"And that may not be the final word," said deputy chief economist Douglas Porter in a note. "With the housing sector almost back to pre-recession highs, employment recouping almost 40 per cent of its recession losses and real retail spending and auto sales close to their highs, can we really call this a fragile recovery? It looks more and more V-shaped by the day."

Canada's economy powered back to life in the final quarter of last year, expanding by a better-than-expected 5 per cent thanks to the housing market, consumer spending and trade.

Royal Bank of Canada, too, believes the first quarter will show some heat. It had pegged growth at 3.8 per cent, but now has a "monitoring" forecast of more like 4.6 per cent.

"In early 2010, it looks like the strong momentum is being maintained and that strength does look fairly broadly based," said assistant chief economist Paul Ferley in an interview.

Headwinds remain, he cautioned. Demand from Canada's major trading partners - the U.S. and Europe - is still rocky and that poses a risk for Canada.

The Canadian dollar's rapid ascent to near parity poses another threat. Prime Minister Stephen Harper warned Friday "The governor of the Bank of Canada has been very clear...the excessive or premature rise in the Canadian dollar...is a risk in terms of the recovery of the Canadian economy."

The central bank said in January it expects the economy will grow 3.5 per cent in the first quarter and 2.9 per cent this year.

Montreal-based Desjardins Group boosted its forecast Monday. It now sees the Canadian economy growing 3 per cent this year, "thanks in particular to a fairly strong first quarter."

Growth will moderate in the second half of the year as the effects of government spending and residential investments taper off, Desjardins said in its economic and financial outlook.

It believes the loonie will hit parity "very shortly," appreciating to $1.04 (U.S.) by the fall of next year.

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