Mark Carney was smiling but sounded a little testy when answering questions before the House of Commons finance committee on Tuesday.

The governor of the Bank of Canada was asked about his latest projection of 3.8 per cent growth for the Canadian economy in 2010.

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'We don't do optimism; we don't do pessimism. We do realism at the Bank of Canada,' Bank of Canada governor Mark Carney told the House of Commons finance committee this week. ((Tom Hanson/Canadian Press))

Liberal finance critic John McCallum asked whether the forecast "goes out on something of an optimistic limb." 

"We don't do optimism; we don't do pessimism," Carney countered. "We do realism at the Bank of Canada. We don't do spin."

The bank must make these predictions carefully and responsibly since governments and businesses make real-world decisions based on its projections. McCallum says he's encouraged by the bank's forecast but worries the Harper government is not committed to rolling out the $40-billion stimulus contained in the budget as quickly and effectively as possible.

Hey, if the governor says the economy is going to rebound, what's the rush?

The bank makes four monetary projections a year so it's not as if it makes one final prediction on New Year's Eve and has to live with it for the next 365 days. It finesses its predictions as the year progresses depending on how many people find jobs, whether oil prices skyrocket or tank or how much extra grain Canada sells to China. 

It basically makes two predictions in its quarterly monetary policy reports: how much the economy will grow in terms of gross domestic product and what the inflation rate is likely to be. The bank targets a two per cent rate of inflation, and in the short term, it's done quite well.

To test the bank's crystal ball, we'll look at what it believed inflation would be in the final quarter of the year in its January reports — which look nine months into the future.

Core Inflation Predictions   Actual                            
 January 2005  1.7%  1.6%
 January 2006  1.9%  2.2%
 January 2007  2.0%  1.6%
 January 2008  1.6%  2.2%
 January 2009  1.1%  ?
     
Source: Bank of Canada and Statistics Canada

In a sense, it's a self-fulfilling prophecy. The bank raises and lowers its lending rate specifically to get inflation to run at about two per cent. Carney pointed out this week that the bank has cut short-term interest rates by 3.5 percentage points to a historic low of one per cent. He says that's resulted in lower prime interest rates and lower variable mortgage rates.

The bank has a lot less control with how well the total economy performs in terms of gross domestic product. But if there's a pattern of pessimism or optimism, it's hard to see.

   GDP Growth  Prediction  Actual GDP Growth
 January 2005  2.8%  2.88%
 January 2006  3.1%  3.12%
 January 2007  2.3%  2.71%
 January 2008  1.8%  0.95%
 January 2009  -1.2%  ?
 January 2010  3.8%  Too optimistic?
 Source: Bank of Canada and Statistics Canada    

Again, the bank wasn't far off, missing the mark the most in last year's projection. But remember, the TSX started off 2008 at around 13,000 points and would rise another 2,000 before the ugly tailspin began. There were signs 2008 might be troubled, but even shares at Lehman Brothers were rising well into the summer.

Still, 3.8 per cent growth in 2010? Some analysts say it not only sounds high; it is high.

'We'll see Canadian housing and consumer markets catch up to the kind of deterioration we're seeing in the U.S.' —Derek Holt , Bank of Nova Scotia

Bank of Nova Scotia economist Derek Holt says most private sector economists remain far gloomier about Canada's near-term economic future. His bank's forecast is for a tepid 1.6 per cent growth rate in 2010, about one-third of Carney's and not enough to reverse this year's expected losses.

"I honestly think that over the course of the next year, we'll see Canadian housing and consumer markets catch up to the kind of deterioration we're seeing in the U.S. We'll probably get hit as much on the real side of the economy," he said.

Even Carney says critical decisions must be made in the coming weeks in the United States and in other major economies for his projections to come true. He says the U.S. bailout bill is an example of the extraordinary policy initiatives he believes can rescue the global economy. 

"If these national and multilateral measures are not timely, bold and well executed, Canada's economic recovery will be both attenuated and delayed," he said.

So, take that, John McCallum.