Financial conditions index overstates prospects for GDP growth

The Bank of Canada's revamped monetary conditions index signals that financial conditions looser than they have been for most of the past 15 years. Normally GDP growth would be expected to accelerate in response to that financial stimulus. A loosening of financial conditions is not going to have the same positive effect on GDP growth that we would normally expect to see, however. Exporters are too uncompetitive to fully exploit the dollar's weakness, firms are too cautious to invest and households are already struggling under record debt burdens.