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By Leah Schnurr and David Ljunggren
OTTAWA, May 25 (Reuters) - Damage from the wildfires in
Alberta will shave 1.25 percentage points off economic growth in
the second quarter, though a speedy rebound was likely, the Bank
of Canada said on Wednesday in a statement that was considered
more hawkish than expected.
The preliminary assessment was in contrast to the 1.0
percent annualized growth the central bank forecast in April for
the second quarter, and leaves the economy on course for a
contraction in the quarter after a strong start to 2016.
"The second quarter will be much weaker than predicted
because of the devastating Alberta wildfires," said the bank,
which kept its main policy rate at 0.50 percent, as expected.
The fires are estimated to have cut daily oil production by
more than 1 million barrels and taken half the nation's oil
sands capacity offline.
Still, the central bank anticipates a third-quarter rebound
as production restarts and reconstruction begins.
The Canadian dollar strengthened against the greenback
following the decision. CAD/
"They offered a downside assessment of the Alberta wildfires
as something preliminary but they do characterize this as a
transitory shock, which will prove to not impact bank policy, in
our view," said David Tulk, chief Canada macro strategist at TD
Securities.
"The currency market has interpreted it as a more hawkish
statement."
After cutting rates twice last year to offset the impact of
cheaper oil, the bank is expected to keep rates steady until the
third quarter of 2017. CAD/POLL
Wednesday's statement provided even more reasons for the
bank to stay on the sidelines, said Paul Ferley, assistant chief
economist at Royal Bank of Canada.
Overall, the economy's adjustment to lower oil prices is
uneven, the bank said. Although business investment and
intentions remain disappointing, first-quarter growth looks in
line with the bank's 2.8 percent forecast.
Recent indicators suggest the United States, Canada's main
trading partner, will see a return to solid growth in 2016
despite weakness at the start of the year, the bank said.
Improved U.S. growth will help boost Canada's exports.
The bank noted that oil prices have rebounded somewhat,
partly due to short-term supply disruptions, while the Canadian
dollar is now close to the level assumed in April.
As the economy adjusts to lower oil prices, the housing
market continues to show strong regional divergences, the bank
said.
(Editing by Bernadette Baum)