The economy looks to be entering a period of below-potential growth, characterised by excess supply in the goods and labour markets. This will keep downward pressure on core inflation, which we think will reach the Bank of Canada’s 2% target by the middle of next year. With the Bank placing increasing emphasis on the risks of policy being too restrictive in its communications, we expect monetary easing to continue at each meeting until the policy rate reaches 2.5% around the middle of 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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