Ten Highlights of Bank of Canada Monetary Policy Report

October 24, 2012

  1. Notwithstanding next year’s fiscal drag, the United States is expected to enjoy a huge economic growth advantage by 2014.  U.S. GDP then is projected to expand 3.2% versus GDP growth of 1.0% in the euro area and 1.1% in Japan.  Chinese growth of 7.7% will remain depressed to average Chinese growth over the past two decades.  Canadian GDP in 2014 is expected to rise 2.4%.
  2. Fiscal drag in the United States is projected to cut GDP growth by 1.0 percentage points (ppts) this year and 1.5 ppts in 2013 and 2014.  Conditions of excess supply will be maintained in the United States “well beyond 2014.”
  3. Canadian GDP likely expanded only 1.0% sequentially last quarter at an annualized rate but is forecast to return quickly to an above-trend pace of around 2.5% from 4Q12 through 4Q13. 
  4. Private domestic demand will account for about four-fifths of Canadian GDP growth in 2013 and 2014.  The rest will be due pretty evenly to government spending and net exports.
  5. Real Canadian GDP growth is projected to climb 2.2% this year, 2.3% in 2013, and 2.4% in 2014.  This pace slightly exceeds potential GDP growth of 2.0%, 2.1%, and 2.2% in those years.  The shortfall of GDP from its potential trendline, which was roughly 0.67% as of end-September, will be eliminated around the end of next year.  That’s a revision from the mid-2013 target date predicted in July, and the change reflects weaker-than-assumed growth in 3Q12.
  6. The Federal Reserve’s QE3 operation, unveiled at the September 13 meeting, is projected by 2014 to lift Canadian GDP growth by 0.4 percentage points.
  7. Global inflation is assumed likely to ease, not accelerate.
  8. Canadian inflation risks are considered balanced.  The baseline forecast calls for core inflation of 1.5% last quarter to edge up to 1.8% in 2Q13 and hover at 2.1% over the ensuing three quarters.  Total CPI inflation is expected to rise from 1.2% in the third quarter of 2012 to 1.4% in 2Q13, 1.7% in 3Q13, and stay at the target of 2.0% thereafter.  Expected medium-term inflation in Canada remains well-anchored at the target level.
  9. The MPR assumes that the loonie stays flat-lined at its present level of 0.99 per USD throughout the forecast horizon.  WTI oil is assumed to be in the low $90s per barrel, which is above the present level.
  10. Household debt in Canada has been reestimated higher than thought previously.  Officials now believe such equaled 161% of GDP in the second quarter of 2013.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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