Bank of Canada Governor David Dodge echoed yesterday’s Monetary Policy report in his testimony to the Senate Banking, Trade and Commerce Committee today.

Dodge noted that the central bank expects to see 3% growth through the second half of 2003, advancing to 3.25% in 2004. “With growth above potential, the slack in the economy should be absorbed by early 2005,” he said.

He also reiterated the Bank of Canada’s inflation outlook. The bank expects core inflation to average just over 1.5% for the rest of 2003, and to fall to just above 1% in early 2004. He sees core inflation should return to 2% by mid-2005, as economic slack is taken up.

Dodge emphasized that there are “significant” downside risks to this economic outlook. “These risks relate to the timing and magnitude of adjustments to global economic imbalances. In particular, there is uncertainty about both the likely changes in key global exchange rates and their effect on the Canadian economy. There is also uncertainty about the sustainability of U.S. growth beyond mid-2004,” he reminded the committee.

“Let me also stress that we are assessing, and will continue to assess, the implications of all developments –both past and future –for output and inflation in Canada, and what this means for monetary policy,” he concluded.