David Dodge, Governor of the Bank of Canada, reiterated the Bank’s expectation of strong economic growth when he spoke at a luncheon at the Canadian Consul General’s residence in Chicago on Thursday.

“In the Monetary Policy Report, which we published a couple of weeks ago, we forecast growth in the first half of this year of between 3.5% and 4.5% at annual rates, although data released since then suggest that the first quarter may have been slightly stronger than we had thought. Second-half growth is expected to be in a range of 3 to 4%,” he said.

Dodge said the Bank now expects that the output gap will close in the second half of 2003. “In these circumstances, our job will be to gauge the strength of the economy as it approaches its capacity to produce and to reduce the amount of monetary stimulus in place in a timely and measured manner,” he said.

He said that the Bank must be timely because rate actions take a year to 18 months to have their full effect on output.

He also stressed that there are still important risks and uncertainties in the economic outlook, both on the upside and the downside.

He also noted differences between the Canadian and U.S. recoveries. “Although the first-quarter national accounts data are not yet out in Canada, we expect that final demand has made up a larger share of Canada’s growth in the first quarter, while the contribution to growth from inventories constituted a smaller share than in the United States.”

Dodge said the key issue facing both the U.S. and Canadian economies is the timing of a recovery in business investment.