Economic Weakness to Continue: Monetary Policy Report

General retrenchment of risk taking in the global economy has inhibited recovery in many areas. Uncertainty abounds in Europe, while weak consumer and investor confidence in the United States is expected to result in weak GDP growth. Sharp appreciation of the Yen is frustrating recovery and reconstruction in Japan, coupled with a decreasing demand for their consumer products. Growth in China, India, and other emerging markets is expected to slow to a more sustainable pace over the next year.

While Canada is still in the eye of the global economic storm relatively, the domestic forecast has taken a turn for the worse since the summer. Domestic demand is likely to remain the primary area of growth, although at a slower pace than anticipated. Exports, on the other hand, are expected to remain weak, due to low foreign demand exacerbated by the persistent strength of the loonie.

The Bank expects growth in Canada will be slow through mid-2012, but should pick up if the global economic environment improves and confidence is restored; it is projected that the economy will expand by 2.1 per cent in 2011, 1.9 per cent in 2012, and 2.9 per cent in 2013 with a return to full capacity by the end of that year.

As a result of all of this, the Bank has decided to maintain the target for the overnight rate at 1 per cent and fiscal policies consistent with achieving the 2 per cent inflation target over the medium term.

For more info: http://www.bankofcanada.ca/2011/10/speeches/opening-statement-83/