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Canadian economy to cool down: Bank 
of Canada   
Politics Watch News Services
October 18, 2007, updated 1:13 p.m.

Bank of Canada Governor David Dodge speaks with reporters in Ottawa Thursday.

OTTAWA  (PoliticsWatch.com) —  The Bank of Canada said Thursday it had altered its economic forecast for Canada because of the stronger Canadian dollar and a "weakened" U.S. economy.   

"In particular, the tightening of credit conditions in the U.S. mortgage market will have a larger and more persistent impact on demand for Canadian exports, especially building materials and consumer goods," the Bank of Canada said in its October monetary policy report. 

The central bank said there had been "significant economic and financial developments" since its last report in July.

The bank now predicts Canada's gross domestic product will grow by 2.3 per cent in 2008, lower than the 2.6 per cent it had forecasted in July. 

In a statement to reporters, Bank of Canada Governor David Dodge warned of problems ahead if the Canadian dollar continues to trade at higher levels than the U.S. dollar. 

"The main downside risk is that output and inflation could be lower if the Canadian dollar were to be persistently higher than the assumed average level of 98 cents U.S. for reasons not associated with demand for Canadian products," he said. 

The bank also said it expects its lending rate to remain at 4.5 per cent "over the medium term."

Dodge explained that in July the bank had predicted that it would likely be increasing the lending rate in the future, but that changed primarily because of a weaker U.S. economic forecast. 

In July, the bank had predicted the U.S. economy would grow by three per cent next year. It has now lowered that projection to 2.1 per cent because of the U.S. housing market. 

"Things have happened since July," Dodge said. 

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