When the Bank of Canada released the text of its latest report yesterday, the loonie fell off a cliff — and no wonder.

Interest rates were unchanged, but more important, governor Stephen Poloz had downgraded growth from 1.7 per cent to 1.2 per cent. Exports were down. So was investment. The housing bounceback was delayed.

But an odd thing happened. Once Poloz began to talk to reporters, the Canadian dollar began to recover.

While all those negative economic indicators were true, Canada's chief central banker and his senior deputy, Carolyn Wilkins, began to paint a more subtle and much more positive picture.

For indebted Canadians hoping for an endless holiday from higher borrowing costs, the news was both good and bad.

"If our forecast is right, which I firmly believe it is, what that means is interest rates are more likely to go up than down," said Poloz.

Of course, the more subtle story told by the central bankers was not universally good.

Trade shock

The predominant reason for their lowered expectations for the economy since the last report in January was what the bank called a "shock" caused by a sharp increase in uncertainty over trade at the end of last year, which has played a malicious trick on the global economy.

Trade battles between the U.S. and China, the U.S. and Europe and the U.S. and Canada knocked the stuffing out of not just global trade, but new business investment. And the effects go far beyond Canada.

"Forty-seven countries have experienced a slowdown very similar to our own," Poloz told reporters. "That's not a coincidence. That's 47 countries that rely on international trade in order to do business."

Ontario Premier Doug Ford's recent budget also contributed to the bank's lower outlook. While fiscal spending in Quebec, B.C. and at the federal level were all higher, a cut in projected government spending in Canada's most populated province was enough to offset all the others and more.

The Bank of Canada says home sales are now stabilizing as Toronto and Vancouver adjust to new mortage rules. According to Poloz, Canada's growing population will buttress prices. (Don Pittis/CBC)

Another drag on the economy, said Poloz, was the energy sector, still struggling from low prices and poor market access. The exceptional frigid and stormy weather across most of the country also delayed exports, retail spending and other economic activity.

But as Poloz and his group of advisers studied the gloomy data they had assembled, they were skeptical that it was really as bad as it seemed.

A half-million vacant jobs

Despite an interruption in employment growth last month, there are other indicators that the economy is still hungry for workers. Wage growth outside the energy-producing provinces continues to rise at rates well above inflation.

"Vacancy rates are still above 500,000," said Wilkins. "They've kind of given up on hiring the perfect person. They're hiring young people out of school and they're training them."

That private-sector investment in human capital expands the capacity of the economy — a good sign for future growth.

On housing, the unwinding of overcharged markets in Greater Vancouver and Greater Toronto is big enough to show up in the national statistics, though in most other cities, the real estate market remains healthy.

Poloz expects what he calls the "froth" to come out of those two markets as soon as this spring, as Canada's expanding population puts the housing market back on track.

On the carbon-pricing front, the new charge will have a small effect on inflation this year: about a tenth of a percentage point that will drop by half next year. The bank's calculations show the effect on economic growth will be negligible because the rebates mean the money will still be spent — just on different things.

While the damage to the fossil fuel-based energy sector due to reduced investment and poor transportation links will continue to bite energy-producing provinces, the recent sharp increase in oil prices mean things will be much better than they were.

Battles over trade have hurt economies around the world as uncertainty leads businesses to delay new investment. (Chris Radburn/Reuters)

And, of course, winter is finally over.

All that does not mean the Canadian or global economy is entirely out of the woods. Failure to resolve trade disputes could mean the downturn would continue to inflict pain. On the other hand, a successful resolution of trade disputes could cause the opposite effect: that strange central banking concept of "the upside risk."

But barring further shocks, Poloz said the Canadian economy would not just recover soon, but is recovering now: The depths of the economic dip were the last three months of 2018 and the first three months of this year.

"We're into the positive frame already," he said.

The slower pace of rate hikes by central banks around the world have already had their effect, raising stock markets and commodity prices.

"Right now, we believe that this setting of interest rates will give the outlook," said Poloz. "Growth picks up in the second quarter and picks up for real in the third quarter."

But like the rest of us, the experts at the Bank of Canada will be watching the economic statistics as they roll in to see if their wishes have come true.

Follow Don on Twitter @don_pittis