With the economy now in a position of excess supply, we expect core inflation to continue to fall back to 2% by the middle of next year. With the Bank of Canada putting more emphasis on the downside risks to the economy, we expect the Bank to cut interest rates further, with the policy rate ending the year at 3.75% and settling at 2.5% next year. Lower interest rates should, in turn, drive a recovery in GDP growth from just 1.2% this year to 2.2% in 2025 and 2.8% in 2026.
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