At several moments during the presentation of the latest Monetary Policy Report, the governor of the Bank of Canada and his deputy seemed on the verge of bursting out into uncharacteristic optimism.

But on each occasion, Stephen Poloz and Carolyn Wilkins were quick to correct that impression.

"Since we last sat here three months ago, the data have not been uniformly positive, but they've been much more positive that they have been on balance for the last — I don't know — year, say," Poloz said at one point Wednesday, in what seemed like a lapse in his normal pessimism.

Employment, economic growth and business activity were all better than the central bank had expected.

But before that good feeling could settle in, Poloz reminded the assembled reporters that the bank had seen something similar last winter — before being disappointed.

"I think that shows it's right for us to remain cautious … being more sure that the momentum is real and sustainably broad-based," warned Poloz.

"The point is, though, the data has been good the last few months and we're really glad of it. It's better than serial disappointment to report on."

Serial disappointment

"Serial disappointment" has been one of Poloz's signature phrases in previous MPR news conferences.

The bank's outlook on growth — now at 2.6 per cent, up from the 2.1 forecast in January — is decidedly optimistic, as is the estimate that interest rates could begin to rise in early, rather than late, 2018.

The Bank of Canada expected a larger bounceback in the economy since the 50 per cent decline in the oil and gas sector, but recovery has been slow. (Bruce Tilley/CBC)

That increase is based on the effect of low interest rates and the stimulative effect of federal fiscal spending that is now working its way into the economy.

Nonetheless Poloz and Wilkins say business investment, hit by a 50 per cent decline after oil prices dropped, has not shown the kind of recovery typical in this stage of the growth cycle.

'Slow creep'

"These things tend to take on a momentum as an economy recovers, and so what you see is a slow creep," said Wilkins. "But on the other hand, the uncertainty that we've talked about, when we talk to firms, it's actually holding them back."

Effectively, Wilkins says, businesses seem to be holding off on making new investments — especially investments in new expansion — until they see which way the wind is blowing in the United States.

At the heart of that uncertainty is President Donald Trump and his promises for the U.S. economy. A sudden application of trade barriers on imports from Canada could lead to a major hit to Canadian growth.

U.S. President Donald Trump has threatened trade barriers and promised cuts in regulation. Canadian businesses are delaying new investment as they wait to see how any new rules will affect them. (Joshua Roberts/Reuters)

Silver cloud, dark lining

A long-promised but long-delayed lifting of the U.S. regulatory burden could be a trigger for new investment, but Wilkins says Canadian businesses are waiting to see whether it's better to expand here or south of the border.

Another dark lining in the economy's silver cloud, the bank says, is the Greater Toronto property market.

While growth in the real estate sector has been strong, Poloz worries that it may not continue and could even hurt the wider Canadian economy if boom suddenly turns to bust.

A Toronto neighbourhood is seen through a soap bubble. The Bank of Canada warns that an unwinding of the country's largest housing market could hurt the national economy. (Frank Gunn/Canadian Press)

The strong demand for houses in the Toronto area may indeed have a fundamental basis as the economy and population grows, he says.

"But what has happened in the last year is that things have accelerated from the high teens into the 30 per cent zone for price increases," Poloz warned. "Well, there's no fundamental story that we could tell to justify that kind of inflation rate in housing prices."

He added: "I think it's timely to remind folks that prices can go down as well as up."

Rate cuts off the table

Even with the central bankers' reservations and qualifications, their mood has noticeably changed, with a definitive statement that interest rate cuts, mooted only a few months ago, are now off the table.

The Canadian dollar rose after Wednesday's Bank of Canada report, but since the U.S. dollar fell against both the euro and gold, the relatively upbeat report may not have been the crucial factor for the loonie.

In fact, despite the various headwinds faced by the Canadian economy, Poloz and Wilkins were even able to discuss the more-distant possibly of even greater optimism ahead.

Poloz and his deputy, Carolyn Wilkins, have taken a pretty gloomy view on the Canadian economy in the past. This week, a little sunshine leaked in. (Chris Wattie/Reuters)

Although the effects have not yet been incorporated into the Bank of Canada's outlook, it believes Canada's free trade agreement with Europe and the new agreement to liberalize trade between the Canadian provinces could have a material positive effect on the national economy.

The other bit of optimistic potential is that if Canadian businesses see the economy continuing to grow, the momentum of that growth can have a compounding effect, creating a virtuous circle of greater economic capacity that draws students and others into the workforce with offers of good employment.

Of course, those cheerless central bankers, who may eventually have to raise interest rates to quell that burst of economic activity, have their own gloomy name for the chance of a new economic boom.

They call it "the upside risk."

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