(May 11 – 11:41 ET) – The Bank of Canada today released its 11th Monetary Policy report. In this issue, the Bank notes that the Canadian economy outperformed expectations since last November. Bolstered by vigorous external and domestic demand, Canada’s economic expansion strengthened in the second half of 1999 and into early 2000. The inflation trend in was lower than expected over the past six months and has remained among the lowest in the industrial countries.
The Canadian economy has benefited from greater-than-anticipated strength in the global economy. The strong momentum and high levels of activity in the U.S. economy have also carried into this year, a situation that continues to pose a potential inflation risk. Emerging-market economies have enjoyed significantly stronger-than-expected growth, and prospects are generally bright for 2000. The outlook for Japan remains far more uncertain. In Europe, continued solid growth is expected through the year.
Given the strong momentum of demand, the Bank of Canada has raised its projection for growth in 2000 to a range of 4% to 4.5%. At this pace, capacity pressures will likely intensify in 2000 and, as a result, the core rate of inflation is expected to rise gradually to close to the middle of the Bank’s 1% to 3% inflation-control target range.
The main risks to this outcome are the possibility of continued stronger-than-expected momentum of aggregate demand both from the U.S. economy and from domestic spending, and the possibility of a buildup of inflationary pressures in the United States spilling over into Canada.
– IE Staff