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Summary
- The Bank of Canada (BoC) has said that the gross domestic product growth will be around six per cent this year.
- Despite speculations, key interest rates will not be increased by the Bank of Canada.
- Lockdowns and strict public health measures impacted the economic recovery in the second quarter of this year.
Canadian economic recovery will be a little slower than expected in 2021 amid business operational disruptions due to the third wave of the COVID-19 pandemic. The Bank of Canada (BoC) said that the gross domestic product (GDP) growth will be around six per cent this year, less than the previous estimate of 6.5 per cent.
However, as public health restrictions are lifted slowly and more people are vaccinated, the BoC has revised the GDP forecast to 4.5 per cent in 2022. Earlier in April this year, the central bank had said that the Canadian GDP will slow down to 3.75 per cent in 2022.
Meanwhile, the growth in 2023 remains unchanged from the April estimate and BoC projects a 3.25 per cent growth.
How will the Canadian economy bounce back?
The Bank of Canada estimates that consumption will lead the economic recovery as households will likely resume their previous spending patterns. The central bank also expects that the housing market activity will cool down, and that will result in increased spending.
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The pandemic has hit business sentiments and the central bank believes that domestic and foreign demand for goods and services will increase amid vaccine rollout and reduction in the number of coronavirus cases. If the demand increases, the market confidence and business sentiments might bounce back to pre-pandemic levels and that will help the economy recover.
In Canada, the unemployment rate declined to 7.8 per cent in June and as the economy reopens, the labour market is expected to make strong gains this year. Lockdowns and strict public health measures had reduced the output and as businesses restore normalcy, the output will likely increase.
The interest rate remains unchanged
Despite speculations that the central bank might raise the interest rates, the key policy rate has been maintained at 0.25 per cent. Ever since the pandemic hit Canada in 2020, the interest rates have remained unchanged.
The BoC said that it is not changing the rates as the economy recovers from the public health crisis and the recovery is still dependent on the course of the virus.
