Bank Of Canada Lowers Its GDP Forecast For This Year To 3.50%

The Bank of Canada has lowered its forecast for gross domestic product (GDP) this year to

3.50% from 4.25% previously as the economy begins to slow in the wake of higher interest

rates.

The central bank also lowered its forecast for GDP growth in 2023 to 1.75% from 3.25%. The

diminished forecasts were issued as the Bank of Canada raised interest rates by a full

percentage point, lifting its benchmark overnight interest rate to 2.50%.

In addition to higher interest rates, the Bank of Canada said that the Canadian economy is

being negatively impacted by an ongoing surge in commodity prices and rising housing costs.

Regarding inflation, the Bank of Canada said it expects consumer prices to be “substantially

higher than projected” by year’s end. The central bank now says that inflation in Canada should

be at 7.2% at the end of this year, an outlook that is two percentage points higher than its

previous forecast.

The central bank added that inflation is likely to sit at 4.60% in 2023 before dropping closer to its

2% target in 2024. Specifically, the Bank of Canada sees inflation at 2.30% two years from now.

In its quarterly Monetary Policy Report, the Bank of Canada acknowledged that it failed to

accurately predict inflation’s rise since 2021. The central bank blamed its missed inflation

projections on higher commodity prices, increased supply shortages, and elevated shipping

costs.

Canada’s faster-than-expected economic recovery from the global pandemic and hot housing

market were also cited as having big impacts on inflation over the past 18 months.

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