BoC revises 2021 GDP growth forecast up to 6.5% from 4%

The Bank of Canada announced on Wednesday that it revised its 2021 GDP growth higher to 6.5% from 4% in January's Monetary Policy Report (MPR).

Key takeaways as summarized by Reuters

"Bank of Canada projects economic slack will be absorbed some time in H2 2022 vs. 2023 in January MPR."

"Timing of this projection is more uncertain than usual, given the uncertainty around potential output and highly uneven impacts of the pandemic."

"BoC projects 2022 GDP growth of +3.7% (vs +4.8%) and 2023 +3.2% (vs +2.5%)."

"BoC estimates pandemic will be less detrimental to potential output than previously assessed; sees potential output growth averaging about 1.6% per year over 2021-23, up 0.5 percentage points from October."

"Economic activity will be supported by strong foreign demand, relatively high commodity prices, recovery in confidence, and fiscal and monetary policy."

"Current resurgence of COVID-19 presents a new setback; the economic impact of the third wave expected to be material but temporary."

"In near-term, inflation expected to rise temporarily to the top of 1%-3% target range on base-year effects and gas pricing."

"Inflation will then decline towards 2% over H2 2021 and drop further in h1 2022, expected to be at around 2% in H2 2022 as slack is absorbed."

"It may take some time for overall employment to recover; given population growth, around 475k people would need to be hired to reach pre-pandemic employment levels."

"Goods exports set to strengthen on global demand and high commodity prices; this will substantially exceed adverse impacts of recent C$ rise."

Market reaction

The USD/CAD pair extends slide during the American trading hours and was last seen losing 0.95% on a daily basis at 1.2490.