Bank of Canada sees stronger 2023 growth, indicates recession risk has shrunk

OTTAWA (Reuters) – The Bank of Canada on Wednesday increased its 2023 growth forecast to 1.4%, up from the 1.0% it predicted in January, and indicated it saw less risk of a recession this year.

In its quarterly Monetary Policy Report, the central bank also said inflation should drop quickly to around 3% by mid-2023 but would not hit the 2% target until the end of 2024. In January, it merely said inflation would fall to 2% in 2024.

The bank said annualised growth would hit 2.3% in the first quarter before averaging less than 1.0% for the rest of 2023.

“Quarterly growth is expected to be weak through the rest of the year. It then picks up gradually through 2024,” it said.

The bank dropped language saying the chances of a couple of quarters with slightly negative growth were the roughly the same as a couple of quarters with slightly positive growth.

The bank cut the 2024 growth forecast to 1.3% from 1.8% in January and said the economy would expand by 2.5% in 2025.

It said the growth of potential output was expected to increase to 2.3% in 2023 from 1.4% in 2022 and estimated that the nominal neutral rate of interest lay between a range of 2% to 3%, unchanged from its assessment in April 2022.

(Reporting by Steve Scherer and David Ljunggren)