The Bank of Canada forsee modest growth in the first half of the 2001. It will pick up and strengthen through the second half of the year, leading to good growth in 2002, says Bank of Canada Deputy governor, Sheryl Kennedy. She made the remarks yesterday during a speech given to the Toronto Society of Financial Analysts.

The bank expects a “reasonable” performance this year, with growth somewhere between 2.5% and 3.5% in the second half of the year and stronger growth next year, says Kennedy.

“The Bank of Canada remains generally positive about Canada’s economic prospects in the period ahead. We are in the midst of a bumpy period, but there are reasons to believe that adjustments to the economy are proceeding quickly,” says Kennedy.

The Bank of Canada has responded to the current slowdown by lowering interest rates a total of 100 basis points since January, bringing the overnight rate down to 4.75%.

Kennedy says the bank was surprised by the speed of the slowdown in the U.S. economy, and suggested that is reason number one for the slowdown in the Canadian economy.

“What we did not expect, nor did most analysts, was the abruptness of the U.S. economic slowdown towards the end of last year. This has been the principal factor in the current slowing of the Canadian economy,” says Kennedy.

She also noted the slowdown has been steeper in the U.S. than in Canada, indicated by the yield spreads on government bonds—the spread between Canadian and U.S. government securities turned positive in 2000 and have since widened.

The bank is predicting U.S. growth to be between 1% and 2% for the rest of the year, slightly below the census forecast, but Kennedy says the bank expects that to rise to 2.5% to 3.5% in 2002.

“It is clear from our contacts across Canada that Main Street is continuing to spend—Canadian businesses generally view conditions as favorable and consumer confidence and spending are holding up,” she says.

The deputy governor also went out of her way restate the Banks’ position on the dollar. Recent comments about alternative currency regimes, by David Dodge, Governor of the Bank of Canada, were received by some as an indication that the Bank is warming to the idea of a currency regime other than the current free-floating dollar. Kennedy was quick to nip that one in the bud.

“All our analysis at the Bank, and indeed, much of the outside analysis, confirms that there are very significant benefits from having an independent currency. And thus continue to be the case for the foreseeable future. It should be clear that the government and the Bank of Canada support a flexible exchange rate anchored by domestic inflation targets as the key elements of our made-in-Canada monetary policy, ” says Kennedy.