- Bank of Canada
The Bank of Canada maintained its key interest rate at 0.5%, saying the Canadian economy continues to adjust to the oil price shock. The central bank admitted that GDP growth in the first quarter appeared to have been unexpectedly robust, but some of that strength was due to temporary factors and is likely to wane in the second quarter. Even though non-resource exports are predicted to strengthen, their profile is weaker than previously thought, partly due to slower foreign demand growth and the higher Canadian Dollar. The economy continues to create net new employment, especially in the services sector. Against this background, household spending continues to increase moderately.
On the international outlook, the BoC expects growth in the global economy to strengthen gradually from around 3% in 2016 to 3.5% in the next two years, a weaker growth projection compared with January's forecast. After a weak start to 2016, the US economy, Canada's major trading partner, is expected to regain momentum, but with a lower profile and a composition that is less favourable for Canadian exports. In light of these external and domestic developments, the central bank now projects real GDP growth of 1.7% in 2016, 2.3% in 2017 and 2.0% in 2018, suggesting the output gap could close somewhat earlier than the BoC had estimated in January, likely in the second half of 2017.
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