Now expects slack in economy to be absorbed in the second half of 2022
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OTTAWA — The Bank of Canada sharply hiked its outlook for the Canadian economy on Wednesday and said it expected slack to be absorbed in the second half of 2022, suggesting rates could rise sooner than the previous forecast of sometime in 2023.
The central bank, in its spring Monetary Policy Report, also said the COVID-19 pandemic would be “less detrimental” than expected to the economy’s potential output. Last year it slashed its key rate to a record low 0.25 per cent.
The bank now expects Canada’s economy will grow 6.5 per cent in 2021, up from its January forecast of 4.0 per cent, with real GDP growth of 3.7 per cent in 2022, down from a previous forecast of 4.8 per cent. It now sees U.S. economic growth this year at 7.0 per cent, up from 5.0 per cent.
“In view of the more favorable economic outlook, the Bank now expects slack will be absorbed and inflation will sustainably return to target some time in the second half of 2022,” the Bank said, cautioning that the timing of the projection was more uncertain than usual.
While recent job numbers look positive, it may take considerable time for full employment to return, the bank said. Due to population growth Canada needs to add 475,000 jobs to return to pre-pandemic employment levels.
© Thomson Reuters 2021
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