Weaker-than-expected U.S. economic performance will hit Canadian export growth this year, the Bank of Canada said Thursday.

"With the U.S. slowdown now expected to be somewhat more prolonged than previously projected, net exports should exert a slightly greater drag on growth in 2007," the bank said in its latest Monetary Policy Report. 

David Dodge says he plans to take six or seven months to figure out what to do after he steps down as governor of the Bank of Canada in January.
(Canadian Press/File Photo)

Accordingly, the central bank has slightly lowered its estimate of the country's economic growth for the current year.

GDP growth in Canada is projected to be 2.2 per cent in 2007, down slightly from the 2.3 per cent growth rate it projected in January.  

But the Bank sees the economy rebounding next year. GDP growth of 2.7 per cent is forecast for both 2008 and 2009.

Canadian consumers will play a big part in keeping the domestic economy chugging ahead for the next few years, the Bank of Canada said.

"Consumer spending is expected to grow solidly over the projection period, reflecting further gains in real disposable income and increases in household net worth," it says.

Rosy profits

The Bank of Canada also sees strong business investment, thanks to high commodity prices, rosy profits and a strong outlook for global growth.  

On Tuesday, the central bank left its key lending rate unchanged for the seventh consecutive meeting. But it noted that higher inflationary pressures in the short term bear close watching.

The Bank now expects that core inflation will remain above two per cent until late this year. The total inflation forecast was also bumped higher to account for higher energy prices.

"The combination of slower growth but a near-term pick-up in core inflation suggest that the bank will keep the overnight rate steady as policymakers watch to see whether the weaker pace of growth leads to a decline in underlying price pressures as they expect," said RBC senior economist Dawn Desjardins.

'Time to take a bit of a rest': Dodge

Bank of Canada governor David Dodge, who announced Wednesday that he would not seek a second term when his current term expires next January, said he wants a break before he tries something new.

"I turn 65 next year and it seemed like a good time to take a bit of a rest after 40 years of working without a break," he told a news conference.

But he acknowledged that he's not about to completely retire. "I'm going to take six or seven months to figure out what to do," he said.

Dodge refused to comment on the legacy he'll leave or talk about  successes or disappointments. "I'll talk about that in nine months," he said.

But he encouraged his colleagues to consider applying to be his successor: "Think about it. It's a tremendous job."