Canada’s economy is slowing much faster than previously expected, the Bank of Canada said yesterday in a bleak outlook that stresses mounting risks from Europe’s debt crisis and a possible global stall.

Still, the bank said it does not expect to backtrack on its current trend to higher short-term interest rates. Bank of Canada’s key rate has risen half a point since early June, including a quarter-point hike Tuesday.

The 28-page document makes clear that the Bank of Canada’s governing council sees conditions in Canada and around the world deteriorating since its last assessment in April, and risk factors intensifying.

Canada’s economy is already in the midst of a sharp pullback compared with the strong 6.1 per cent acceleration that occurred in the first three months of 2010, the bank says.

It estimates the just-ended second-quarter growth will come in at three per cent, almost a full percentage point below what the April forecast.

The report points to risks stemming from the European crisis, lower growth in China, high unemployment, loss of confidence, weak consumer demand and businesses too fearful to invest in the future.