E The Bank Of Canada Is Being Extremely Cautious In Its Latest Policy Statement; Waiting For External Factors To Unfold

At its July 10th policy meeting, the Bank of Canada maintained its target for the overnight rate at 1 ¾%. The central bank also updated its forecast for Canada’s real GDP growth to 1.3% this year, 1.9% next year and 2% in 2021.

The Central Bank’s latest report stressed the need for staying the course. Clearly, the Bank would have preferred that its overnight interest rate was higher, in order to provide it with more scope for boosting the economy, if it was needed.

The Bank’s most important observation is that while trade tensions have slowed the global economy, most central banks have indicated a willingness to ease in order to offset some of the trade-induced slowing.

Nonetheless, an escalation in trade conflicts remains the biggest downside risk to both the global and the Canadian economic outlooks.

In its Canadian economic projections for 2019, the Bank observes that the composition of growth has tilted quite heavily towards consumption, while the contribution from foreign trade and inventories has weakened the economy. Though not saying it as clearly as this economist, the Bank’s projections continue to paint inflation as a non-issue, as is also the case for the US.

On the domestic front, the Bank expects the Canadian economy to return to 2% trend-like growth next year and in 2021.

Though growth this year is expected to be quite slow (1.3%), the Bank is now expecting a rebound to 2.3% annual growth in the second quarter from only 0.4% in the first.

The Bank also downgraded its world GDP growth projections to 3% this year and 3.2% next year. Global growth in 2021 was projected at 3.3%.

The US economy is expected to post a 2.5% growth this year and then slow to 1.7% in 2020 and 1.6% in 2021.

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The Bank Canada Overnight Lending Rate (%) 

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The Bank Of Canada’s Global Projections 

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