In the Report, the Bank noted that three major interrelated global
developments are having a profound impact on the Canadian economy and
making the outlook for growth and inflation more uncertain than it was
at the time of the July Monetary Policy Report Update. First, the
intensification of the global financial crisis has led to severe
strains in financial markets. The associated need for the global
banking sector to continue to reduce leverage will restrain growth for
some time. Second, the global economy appears to be heading into a mild
recession, led by a U.S. economy that is already in recession. Third,
there have been sharp declines in many commodity prices.
The Bank projects average annual growth in real GDP of 0.6 per cent in both 2008 and 2009, and 3.4 per cent in 2010.
With excess supply projected to build throughout 2009, and with lower
assumed energy prices, inflationary pressures will ease significantly
relative to the projection in the July Monetary Policy Report Update.
Core inflation is now projected to remain below 2 per cent until the
end of 2010. Total CPI inflation should peak during the third quarter
of 2008, fall below 1 per cent in mid-2009, and then return to the 2
per cent target by the end of 2010.
In line with the new outlook, some further monetary stimulus will
likely be required to achieve the 2 per cent inflation target over the
medium term. The evolution of the financial crisis, its impact on the
global economy, and the timing of the effects of the various
extraordinary measures being taken to address it pose significant risks
to the inflation projection on both the upside and the downside.