The Bank of Canada says the economy is starting off the year on relatively sound footing, but is warning Canadians about their debt levels and the price of oil.
The central bank says in a new economic outlook that growth in Canada will come in at 2.5 per cent in the first three months of this year, well above the 1.8 level it had expected three months ago.
The bank sees growth rising faster than anticipated in each of the first three quarters of 2012, before levelling off and slowing somewhat.
But the bank says not all is rosy in Canada or around the world, with the potential of a nasty debt crisis still looming over Europe. And despite Canada's formidable oil industry, the bank warned rising oil prices would harm the Canadian economy.
"Improved global economic prospects, supply disruptions and geopolitical risks have kept commodity prices elevated. In particular, the international price of oil has risen further and is now considerably higher than that received by Canadian producers," the bank report stated. "If sustained, these oil price developments could dampen the improvement in economic momentum."
The BoC is also continuing to warn that Canadian households are borrowing too heavily against the value of their homes, making them vulnerable to a house price correction.
"Household spending is expected to remain high relative to GDP as households add to their debt burden, which remains the biggest domestic risk," the report said, echoing a point the bank has been making in recent months.
And although March saw an outside 82,300 jobs created, the bank says employment gains over the last six months have been modest.
-- With files from The Canadian Press
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