Highlights
In its quarterly Monetary Policy Report, the bank forecast that Canada's GDP would show no growth at an annualized pace in the October-December quarter (data due Feb. 29), revised down from 0.8% growth projected in July. Its first estimate for January-March GDP is 0.5% growth.
"In Canada, the economy has stalled since the middle of 2023 and growth will likely remain close to zero through the first quarter of 2024," the bank said."With weak growth, supply has caught up with demand and the economy now looks to be operating in modest excess supply."
Governor Tiff Macklem told reporters that around zero economic growth forecast could mean small positives or negatives but added,"We are not forecasting a deep recession. We don't think we need a deep recession to get inflation back to target but we do need this period of weak growth."
The Canadian economy contracted 0.3% on quarter, or an annualized 1.1%, in the July September quarter, led by declines in business investment and net exports as well as sluggish consumer spending. The economy was flat for the third straight month in October, coming in weaker than Statistics Canada's advance estimate of a 0.2% increase. The flash estimate for November is a slight 0.1% rise.
For the whole year, the bank revised down its 2023 GDP growth forecast to 1.0% from 1.2% projected in October while revising down its 2024 growth forecast slightly to 0.8% from 0.9%. The bank forecast Canada's economic growth will pick up to 2.4% in 2025, revised down slightly from its estimate of 2.5% made three months ago.
The bank's latest consumer inflation outlook for 2023 is 3.9%, unchanged from its previous projection. The consumer price index surged 6.8% in 2022 after a 3.4% rise in 2021. As for the CPI in 2024, the bank forecast the annual inflation rate will remain above the target at 2.8% but slightly lower than 3.0% projected in October. The bank's CPI estimate for 2025 is unchanged at 2.2%.
Canada's CPI data has been fluctuating month to month. Overall consumer inflation picked up to 3.4% in December after being stable at 3.1% in November and easing to the rate in October from 3.8% in September. It had moderated to 2.8% in June 2023, which was the lowest since 2.2% in March 2021 and a sharp drop from a recent peak of 8.1% hit in June 2022.
The BoC's core inflation measures remain elevated. The year-over-year increase in the CPI trim rose to 3.7% in December from 3.5% in November. The annual rate of the CPI median stayed at 3.6%. Those measures strip out whatever is volatile at the time.
"In Canada, the economy has stalled since the middle of 2023 and growth will likely remain close to zero through the first quarter of 2024," the bank said."With weak growth, supply has caught up with demand and the economy now looks to be operating in modest excess supply."
Governor Tiff Macklem told reporters that around zero economic growth forecast could mean small positives or negatives but added,"We are not forecasting a deep recession. We don't think we need a deep recession to get inflation back to target but we do need this period of weak growth."
The Canadian economy contracted 0.3% on quarter, or an annualized 1.1%, in the July September quarter, led by declines in business investment and net exports as well as sluggish consumer spending. The economy was flat for the third straight month in October, coming in weaker than Statistics Canada's advance estimate of a 0.2% increase. The flash estimate for November is a slight 0.1% rise.
For the whole year, the bank revised down its 2023 GDP growth forecast to 1.0% from 1.2% projected in October while revising down its 2024 growth forecast slightly to 0.8% from 0.9%. The bank forecast Canada's economic growth will pick up to 2.4% in 2025, revised down slightly from its estimate of 2.5% made three months ago.
The bank's latest consumer inflation outlook for 2023 is 3.9%, unchanged from its previous projection. The consumer price index surged 6.8% in 2022 after a 3.4% rise in 2021. As for the CPI in 2024, the bank forecast the annual inflation rate will remain above the target at 2.8% but slightly lower than 3.0% projected in October. The bank's CPI estimate for 2025 is unchanged at 2.2%.
Canada's CPI data has been fluctuating month to month. Overall consumer inflation picked up to 3.4% in December after being stable at 3.1% in November and easing to the rate in October from 3.8% in September. It had moderated to 2.8% in June 2023, which was the lowest since 2.2% in March 2021 and a sharp drop from a recent peak of 8.1% hit in June 2022.
The BoC's core inflation measures remain elevated. The year-over-year increase in the CPI trim rose to 3.7% in December from 3.5% in November. The annual rate of the CPI median stayed at 3.6%. Those measures strip out whatever is volatile at the time.
Definition
Since 2009 the Bank of Canada (BoC) has regularly updated its economic view via a quarterly Monetary Policy Report. This presents base-case projections for inflation and growth in the Canadian economy as well as an assessment of the risks. The forecast provides a platform upon which the monetary authority can base its decisions with regards to any changes in official interest rates (and/or unconventional monetary instruments).
Description
Each quarter, the MPR gives the financial markets a view of the BoC's governing council thinking. This provides important guidance especially since the BoC does not publish minutes from its policy setting meetings. The report is released at the same time as the policy announcement is made.
