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MNI (Ottawa)
OTTAWA (MNI)

The Bank of Canada said Wednesday that significant slack in the economy will hold inflation below its 2% inflation target through a two-year projection horizon, among other highlights of its Monetary Policy Report:

  • "The near-term slowing in the recuperation phase is likely to be more pronounced as a result of the recent increase of COVID-19."
  • "There is ongoing and significant slack in the Canadian economy. The gap between the actual output and the potential output of the economy is not expected to close until 2023. The economy is progressing unevenly, with some sectors and workers disproportionately affected by the virus."
  • "Ongoing slack in the economy is expected to continue to hold inflation down into 2023."
  • "The recent reintroduction of some containment measures in response to rising numbers of COVID-19 cases is expected to have a negative impact on economic activity in the near term."
  • The BOC also said the output gap was -3% to -4% in the third quarter, and potential output growth was slashed to about 1% through 2023. Canada's GDP will fall 5.7% this year, less than the 7.8% predicted by the BOC in July, and average about 4% over the next two years.
  • "The economic recovery is projected to be prolonged, underpinned by policy support but largely influenced by the evolution of the virus, ongoing uncertainty and structural changes to the economy."
  • Inflation will be 0.6% this year, while the BOC lowered the 2021 prediction to 1% from 1.2%. Prices will gain 1.7% in 2022.
  • GDP rose at a 47.5% annual rate in the third quarter, faster than the BOC's July estimate of 31.3%, and will slow to 1% in the fourth quarter. The BOC said in July its figures were more of a scenario than an official forecast and today's report returns to its normal projections.
  • "The Bank estimates that the nominal neutral rate in Canada currently lies in a range of 1.75 to 2.75 percent, 50 basis points lower than in the April 2019 update."
MNI Ottawa Bureau | +1 613-314-9647 | greg.quinn@marketnews.com