Yikes! - Q3 Real GDP Growth = 0.4%

We knew it was going to be far worse than what the Bank or Bay Street was forecasting, but I still expected growth to come in around 1% for the third quarter. Imports subtracted over 2% from growth and businesses have still refrained from significantly adding to inventories.

Real GDP growth for Q2 was revised up ever so slightly from -3.4 to -3.1.

With such slim growth, there is a good chance that Q3 may be revised into negative territory, indicating that the recession did not end in early Q3 as previously believed.

Exchange Rate Forecast

Barring extraordinary intervention by the Bank of Canada, I expect the loonie to continue a trajectory towards parity, with a strong possibility of eclipsing that mark in early 2010. The graph above sets out my baseline forecast for the quarterly average US/CAD exchange rate from Q4 09 – Q4 10. The forecast is presented with 50%, 70% and 90% confidence intervals to factor the daily volatility of exchange rates and uncertainty underlying the forecast. The confidence intervals were constructed using spreadsheets from the authors of this (recommended) paper.

The Last Honest Man in Ottawa

Parliamentary Budget Officer Kevin Page calls out Stephen Harper.