In its quarterly Monetary Policy Report (MPR), the bank forecast that Canada's GDP would grow 1.5 percent at an annualized pace in the April-June quarter (data due on Aug. 30), unchanged from its 1.5 percent growth projected in April. Its first estimate for July-Septmeber GDP is a 2.8 percent rise.

The Canadian economy rose 0.3 percent on the month in April after no change in March, making a solid start to the April-June quarter. Statistics Canada's early estimate for May is a 0.1 percent gain. In the first quarter, real GDP grew 0.4 percent on quarter, or an annualized 1.7 percent, below the consensus forecast of a 2.3 percent rise and the BoC's April projection of 2.8 percent. The annualized growth rate in the previous quarter was revised down to no growth from a 1.0 percent rise, averting two consecutive quarters of contraction

This has led the bank to revise down its 2024 GDP growth forecast to 1.2 percent from 1.5 percent projected about three months ago. The bank expects the economic growth to accelerate to 2.1 percent in 2025, but it was revised down slightly from its previous forecast of 2.2 percent. Its estimate for 2026 is 2.4 percent growth, revised up from 1.9 percent forecast in April.

The bank expects its preferred measures of core inflation to slow to about 2.5 percent in the second half of 2024 and ease further in 2025."CPI inflation is forecast to come down below core this fall and settle sustainably around the 2 percent target next year, but it's unlikely to be a straight line," Governor Tiff Macklem said.

The bank's latest consumer inflation outlook for 2024 is 2.6 percent, unchanged from its previous projection. The consumer price index rose 3.9 percent in 2023 after soaring 6.8 percent in 2022 and rising 3.4 percent in 2021. As for the CPI in 2025, the bank forecast the annual inflation rate will remain above the target, at 2.4 percent, revised up from 2.2 percent projected in April. The bank's CPI estimate for 2026 is 2.0 percent, revised down slightly from 2.1 percent.

"As always, there are risks around our inflation outlook," the governor said."Globally, geopolitical uncertainty is high. Here in Canada, the biggest downside risk is that household spending could be weaker than expected. On the upside, inflation in shelter and other services could prove more persistent."

The Bank of Canada will release its quarterly monetary policy report, in which it will provide an update to its medium-term economic projections and risks analysis. In April, the bank said overall the risks to inflation was"balanced" but also noted that it was"more concerned about the upside risks" given inflation continued to be above its 2 percent target. Since then, the annual inflation rate has eased back to 2.7 percent after unexpectedly rising to 2.9 percent in May from a three-year low of 2.7 percent hit in April. Employment fell 1,400 in June after rising 27,000 in May while the unemployment rate rose to 6.4 percent from 6.2 percent.

The bank's quarterly Business Outlook Survey last week showed sentiment among companies in Canada remains more pessimistic than average in April-June as continued weak demand and high borrowing costs have discouraged capacity expansion and also led to easing labor conditions and lower near-term inflation expectations among firms and consumers.

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).

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.