64
CANADIAN INDUSTRY ONLINE - AUGUST/SEPTEMBER 2012
not projected to contribute to growth
in 2012 and to contribute only modest-
ly thereafter, in line with plans to con-
solidate spending by federal and pro-
vincial governments. Canadian exports
are projected to remain below their
pre-recession peak until the beginning
of 2014, reflecting
the dynamics of
foreign demand
and ongoing com-
petitiveness chal-
lenges, including
the persistent
strength of the Ca-
nadian dollar.
The Bank
projects that the
economy will
grow by 2.1 per
cent in 2012,
2.3
per cent in 2013
and 2.5 per cent in 2014. The economy
is expected to reach full capacity in
the second half of 2013, thus operating
with a small amount of slack for some-
what longer than previously anticipat-
ed. Core inflation is forecast to remain
around 2 per cent over the projection
horizon as the economy operates near
its production potential, growth in
labour compensation stays moderate
and inflation expectations remain well
anchored. Given the recent drop in
gasoline prices and with futures prices
suggesting persistently lower oil pric-
es, the Bank expects total CPI inflation
to remain noticeably below the 2 per
cent target over the coming year before
returning to target around mid-2013.
The inflation outlook in Canada is
subject to signifi-
cant risks. The
three main up-
side risks to in-
flation in Canada
relate to the pos-
sibility of higher
global inflation-
ary pressures,
stronger Cana-
dian exports and
stronger momen-
tum in Cana-
dian household
spending.
The three
main downside risks to inflation in
Canada relate to the European crisis,
weaker global momentum and the
possibility that growth in Canadian
household spending could be weaker.
Overall, the Bank judges that the risks
to the inflation outlook in Canada are
roughly balanced over the projection
period. Reflecting all of these factors,
on 17 July, the Bank decided to main-
tain the target for the overnight rate at
1
per cent. To the extent that the eco-
nomic expansion continues and the
“
The three main upside risks
to inflation in Canada relate to
the possibility of higher global
inflationary pressures, stronger
Canadian exports and stronger
momentum in Canadian house-
hold spending.”
