“Of course everyone expected that [the Bank of Canada] would remain on the sidelines so that was no surprise; what did surprise me was how tepid their growth forecast is,” Dr. Sherry Cooper, chief economist for Dominion Lending Centres
, told MortgageBrokerNews.ca. “They told us the global economy has slowed relative to their expectations in January, that the US economy was slower than originally expected. We know the Canadian dollar has risen sharply.”
The Bank of Canada forecasted 1.7% GDP growth in 2016 – a conservative prediction, according to Cooper.
Cooper says this cautiousness is at odds with the Bank of Canada’s attitude last year.
“Basically, it’s the opposite of what happened last year; last year, they had consistent disappointment in their forecast and they were always being too optimistic. Maybe this year they have decided to be a little more realistic,” she said. “They also reduced their outlook on potential growth. In every way, they have basically tempered expectations.
“They seem to think that we will achieve full employment by the second half of next year, and that’s a little later than they originally expected.”
As a result of the softened economic outlook, the Bank of Canada decided to maintain its target for the overnight rate at 0.5% on Wednesday.
“The Canadian economy’s complex structural adjustment to the oil price shock is ongoing and will dampen growth throughout the Bank’s projection horizon,” the Bank said in its press release. “First-quarter GDP growth appears to have been unexpectedly strong, but some of that strength is due to temporary factors and is likely to reverse in the second quarter.”
The Canadian government has changed its tune from last year, and is now more cautious about its statements on the economy, according to one leading economist.