Supply shortages limiting economic growth

We now expect GDP growth to be 4.8% in 2021, rather than 5.0%, and 3.5% in 2022, down from 4.0%. Worsening labour shortages imply that spare capacity has been rapidly absorbed and point to a sharp acceleration in wage growth. In that environment, we now think the Bank of Canada will raise interest rates around mid-2022. We do not expect the Bank to hike by as much as markets are pricing in, however, as higher borrowing costs will hit residential investment hard.