Ottawa: The Bank of Canada on Wednesday reduced its overnight rate by 25 basis point to 4.50%. According to the bank, the global economy is expected to continue expanding at an annual rate of about 3 per cent through 2026.
“While inflation is still above central bank targets in most advanced economies, it is forecast to ease gradually. In Canada, economic growth likely picked up to about 1½% through the first half of this year. However, with robust population growth of about 3%, the economy’s potential output is still growing faster than GDP, which means excess supply has increased,” the bank said in a press release.
“Household spending, including both consumer purchases and housing, has been weak. There are signs of slack in the labour market. The unemployment rate has risen to 6.4%, with employment continuing to grow more slowly than the labour force and job seekers taking longer to find work. Wage growth is showing some signs of moderating, but remains elevated,” it added.
The Bank of Canada said the GDP growth is forecast to increase in the second half of 2024 and through 2025. This reflects stronger exports and a recovery in household spending and business investment as borrowing costs ease, it said, adding that the residential investment is expected to grow robustly.
Overall, the Bank forecasts GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.4% in 2026. The strengthening economy will gradually absorb excess supply through 2025 and into 2026.