OTTAWA — The Bank of Canada says the federal government's multibillion-dollar spending boost has uplifted what would have been a modest downgrade to its economic growth forecast this year. The central bank also kept its trend-setting interest rate locked at 0.5 per cent Wednesday, but it would have considered lowering the benchmark if not for the federal stimulus in areas such as infrastructure. The bank expects the federal investments of about $25 billion over the next two years to more than offset the negative consequences of a slightly stronger dollar, weaker-than-expected global growth and shrinking investment in the oil sector. It is now predicting the country's real gross domestic product to expand by 1.7 per cent in 2016, up from its January expectation of 1.4 per cent.

The central bank is keeping its interest rate locked at 0.5 per cent. (Photo: Flickr) The bank said unexpectedly strong growth in the first three months of 2016 was partly due to temporary factors and that is expected to fade with the loonie's recent rise and slower international demand. "The combined effect of all these global and domestic developments would have been a modest downgrade of the bank's outlook,'' the bank said in a statement that accompanied the latest release of its quarterly monetary policy report. "However, the fiscal measures announced in the March federal budget will have a notable impact on GDP.'' It is now predicting first quarter GDP to register 2.8 per cent, up from one per cent. It's also anticipating one per cent growth in the second quarter of 2016, down from the January forecast of 2.2 per cent. "This was about as small a forecast upgrade as they could have chosen." —CIBC chief economist Avery Shenfeld Using the same baseline numbers in Ottawa's recent budget, it projected federal and provincial government spending to combine to contribute 0.5 percentage points to growth this year and 0.6 percentage points in 2017. The impacts of provincial measures are expected to be minimal. But even with the government lift, the bank lowered its 2017 growth projection to 2.3 per cent from 2.4 per cent. That's because non-resource exports, while strengthening, aren't expected to be as robust as previously thought due to the recent increase in the dollar. Following the announcement, CIBC chief economist Avery Shenfeld wrote in a note that governor Stephen Poloz had no choice but to raise the 2016 forecast since his boss, Finance Minister Bill Morneau, has been ``touting the benefits of fiscal stimulus'' and because the economy saw surprisingly sturdy GDP growth in December and January. "With that in mind, this was about as small a forecast upgrade as they could have chosen,'' Shenfeld wrote.