Stephen Poloz is sticking to his conviction that the Canadian economy is on the cusp of an export-led rebound after stalling early this year.
But it's a highly qualified thumbs-up from the central bank Governor, who spoke Tuesday to a business audience in Charlottetown.
The recovery still faces "choppy waters" – most significantly from the threat that crude prices could start falling again, provoking a new round of cancelled oil patch investments, he said.
"If there is no further downdraft, then we think our forecast of a partial rebound will hold up," Mr. Poloz told reporters after the speech.
The bank's latest forecast, released in April, calls for no growth in the first quarter, followed by growth of 1.8 per cent, 2.8 per cent and 2.5 per cent in the next three quarters.
The central bank's next scheduled interest-rate announcement is next week. But most economists expect the bank to keep its trend-setting overnight rate steady at 0.75 per cent, where it's been since a surprise rate cut in January.
Bank of Montreal senior economist Benjamin Reitzes said Mr. Poloz is sticking to the script the bank laid out in its April forecast, "all but ignoring the potential downside risk coming from the recent spate of soft U.S. data."
In a mostly upbeat speech, Mr. Poloz said the Canadian economy remains on track to reach full capacity and sustainable growth by late 2016.
Ignoring recent signs of economic weakness – both in Canada and the U.S. – Mr. Poloz highlighted a number of positive trends, including a rebound in key exports outside the oil patch, a decline in long-term unemployment, more prime-age Canadians joining the labour force and early signs of a recovery in the creation of new companies.
A basket of key non-energy exports tracked by the bank is up 15 per cent in the 12 months through March, he pointed out. That includes jumps of 20 per cent in aerospace, 11 per cent for machinery and equipment and 4.5 per cent in foreign tourism demand.
Mr. Poloz said he's also upbeat about business investment, outside the energy sector. He pointed out that companies selling into the U.S. are starting to "feel capacity constraints" and may need to "step up investment."
Speaking to reporters, he did acknowledge that some of the recent slowdown in the U.S. may not be just due to temporary factors, including harsh winter weather and the Los Angeles port strike.
"The U.S. economy is slightly puzzling right now," he said.
"Consumers may be saving a bit more of their lower-gasoline-price windfall than we might have assumed."
Nonetheless, he said that the strong U.S. labour market suggests an economy that will continue to rebound rather than show continued weakness.
Mr. Poloz also acknowledged in his speech that the central bank is struggling to get a good reading on inflation due to a raft of temporary factors, including the oil price plunge and the cheaper Canadian dollar.
The bank's "current best judgment" is that underlying "trend" inflation is running at 1.6 per cent to 1.8 per cent per year – still below the bank's official two-per-cent target. It's also below the much broader consumer price index, which was up at a 2.4-per-cent annual rate in March.
The bank's job is made more difficult because the lower dollar is temporarily boosting inflation, while lower oil prices are driving inflation lower.
And yet the price of crude has regained some of its lost ground in recent weeks, rising above roughly $60 (U.S.) per barrel. That has helped lift the Canadian dollar.
"All of this has certainly made it more challenging to distinguish the trend from the temporary," Mr. Poloz said, adding that "a lot of moving parts" are clouding the inflation outlook.
Mr. Poloz also highlighted how lower interest rates and cheaper gasoline are helping Canadians. He said a household renewing a $100,000 mortgage is saving $250 a year on interest payments after the bank's January rate cut. Likewise, lower gasoline prices are saving households $500 a year, he said.
"The January interest-rate cut is working," he said.