Bank of Canada betting on slower growth
But no recession in the forecast
By Rob Roach, ATB Economics 13 July 2023 1 min read
Yesterday’s Bank of Canada interest rate decision—a 0.25 percentage point increase to 5%—was accompanied by a fresh set of growth projections for the Canadian economy. The Bank does this every second rate announcement, or once a quarter.
According to the July edition of the Monetary Policy Report (MPR), Canada’s economy has been outperforming the Bank’s expectations. Consumers, in particular, have been resilient spenders in the face of higher interest rates. Projected real GDP growth in 2023 was revised up to 1.8% (from 1.4% in April) thanks to a stronger-than-expected first half of the year.
The Bank expects consumers will slow their spending while exporters face weaker demand over the next year. As such, growth will moderate to an average of about 1% over the second half of 2023 and first half of 2024.
In other words, the forecast is for sluggish growth over the next 12 months, but thankfully not an outright recession.
On an annual basis, the Bank expects the Canadian economy to expand by 1.2% next year.
These low numbers will, if things go as expected, be followed by a healthier annual growth rate in 2025 of around 2.4% (the 10-year average set before the pandemic was 2.3%).
At 1.8%, the Bank of Canada’s forecast for US economic growth in 2023 is the same as Canada’s, but this will be followed by an anemic 0.6% in 2024 and only 1.4% in 2025.
It’s a similar story for the global economy, with growth slowing next year as tight monetary policy restricts demand followed by an uptick in 2025 as the negative effects of higher interest rates wane.
Answer to the previous trivia question: The Bank of Canada began publishing its Monetary Policy Report in 1995.
Today’s trivia question: The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a free trade agreement between Canada and how many other signatories?