Monetary Policy Report—October 2024
Economic growth in Canada is forecast to pick up gradually. Inflation is expected to remain around 2% as core inflation slows.
Compare recent Bank of Canada projections
Canadian projection
Growth in gross domestic product (GDP) is anticipated to rise slowly over the projection. In contrast, growth in potential output is expected to moderate.
| 2023 | 2024 | 2025 | 2026 | |
|---|---|---|---|---|
| Consumption | 0.9 (0.9) | 1.2 (1.1) | 0.7 (0.7) | 1.1 (1.4) |
| Housing | -0.9 (-0.9) | 0.0 (0.1) | 0.5 (0.5) | 0.5 (0.5) |
| Government | 0.5 (0.5) | 0.7 (0.6) | 0.6 (0.7) | 0.4 (0.4) |
| Business fixed investment | -0.1 (-0.1) | -0.1 (-0.1) | 0.4 (0.4) | 0.5 (0.5) |
| Subtotal: final domestic demand | 0.5 (0.5) | 1.8 (1.7) | 2.2 (2.3) | 2.5 (2.8) |
| Exports | 1.8 (1.8) | 0.4 (0.6) | 1.5 (1.2) | 1.0 (0.7) |
| Imports | -0.3 (-0.3) | -0.2 (-0.4) | -1.1 (-1.0) | -1.2 (-0.9) |
| Inventories | -0.8 (-0.8) | -0.8 (-0.7) | -0.5 (-0.4) | 0.0 (-0.2) |
| GDP | 1.2 (1.2) | 1.2 (1.2) | 2.1 (2.1) | 2.3 (2.4) |
| Memo items (percentage change): | ||||
| Range for potential output | 1.4–3.2 (1.4–3.2) | 2.1–2.8 (2.1–2.8) | 1.1–2.4 (1.1–2.4) | 0.9–2.2 (0.9–2.2) |
| Real gross domestic income (GDI) | -0.9 (-0.9) | 1.0 (1.1) | 1.5 (0.7) | 2.0 (2.0) |
| CPI inflation | 3.9 (3.9) | 2.5 (2.6) | 2.2 (2.4) | 2.0 (2.0) |
- * Numbers in parentheses are from the projection in the previous Report.
- † Numbers may not add to total due to rounding.
Sources: Statistics Canada and Bank of Canada calculations and projections
Quarterly projection
Inflation is forecast to stay close to 2%. Core inflation will slow gradually.
| 2024 | 2023 | 2024 | 2025 | 2026 | |||||
|---|---|---|---|---|---|---|---|---|---|
| Q1 | Q2 | Q3 | Q4 | Q4 | Q4 | Q4 | Q4 | ||
| CPI inflation (year-over-year percentage change) | 2.8 (2.8) |
2.7 (2.7) |
2.1 (2.3) |
2.1 |
3.3 (3.3) |
2.1 (2.4) |
2.0 (2.0) |
2.0 (2.0) |
|
| Core inflation (year-over-year percentage change)† | 3.1 (3.1) |
2.8 (2.7) |
2.5 (2.5) |
2.3 |
3.4 (3.4) |
2.3 (2.4) |
2.1 (2.0) |
2.0 (2.0) |
|
| Real GDP (year-over-year percentage change) | 0.6 (0.5) |
0.9 (0.7) |
1.4 (1.5) |
1.8 |
1.0 (1.0) |
1.8 (2.0) |
2.3 (2.1) |
2.3 (2.5) |
|
| Real GDP (quarter-over-quarter percentage change at annual rates)‡ | 1.8 (1.7) |
2.1 (1.5) |
1.5 (2.8) |
2.0 |
|||||
- * See details on the key inputs to the projection. Numbers in parentheses are from the projection in the previous Report.
- † Core inflation is the average of CPI-trim and CPI-median.
- ‡ Over the projection horizon, 2024Q3 and 2024Q4 are the only quarters for which some information about real GDP growth was available at the time the projection was conducted. For longer horizons, fourth-quarter-over-fourth-quarter percentage changes are presented. They show the Bank’s projected growth rates of CPI and real GDP within a given year. As such, they can differ from the growth rates of annual averages shown in Table 1.
Sources: Statistics Canada and Bank of Canada calculations and projections
Global projection
The global economy is forecast to grow at around 3% in 2025 and 2026 (Chart 22).
| Projected growth* (%) | |||||
|---|---|---|---|---|---|
| Share of real global GDP† (%) | 2023 | 2024 | 2025 | 2026 | |
| United States | 16 | 2.9 (2.5) |
2.8 (2.3) |
2.4 (2.1) |
2.2 (2.2) |
| Euro area | 12 | 0.5 (0.6) |
0.7 (0.7) |
1.2 (1.3) |
1.6 (1.6) |
| Japan | 4 | 1.7 (1.8) |
-0.1 (0.0) |
1.3 (1.1) |
1.0 (0.7) |
| China | 18 | 5.2 (5.2) |
4.6 (4.7) |
4.3 (4.3) |
4.1 (4.0) |
| Oil-importing EMEs‡ | 34 | 3.9 (3.9) |
3.7 (3.9) |
4.0 (3.8) |
4.0 (3.9) |
| Rest of the world§ | 16 | 1.4 (1.4) |
2.0 (1.8) |
2.2 (2.5) |
2.2 (2.5) |
| World | 100 | 3.2 (3.1) |
3.0 (2.9) |
3.1 (3.0) |
3.0 (3.0) |
- * Numbers in parentheses are projections used in the previous Report.
- † Shares of gross domestic product (GDP) are based on International Monetary Fund (IMF) estimates of the purchasing-power-parity valuation of country GDPs for 2022 from the IMF’s October 2023 World Economic Outlook. The individual shares may not add up to 100 due to rounding.
- ‡ The oil-importing emerging-market economies (EMEs) grouping excludes China. It is composed of large EMEs from Asia, Latin America, the Middle East, Europe and Africa (such as India, Brazil and South Africa) as well as newly industrialized economies (such as South Korea).
- § Rest of the world is a grouping of other economies not included in the first five regions. It is composed of oil-exporting EMEs (such as Russia, Nigeria and Saudi Arabia) and other advanced economies (such as Canada, the United Kingdom and Australia).
Sources: National sources via Haver Analytics, and Bank of Canada calculations and projections
Changes to the projection
The following changes have been made to the Canadian and global economic projections, reflecting new information since the July Report.
Global outlook
The outlook for global growth is broadly unchanged, although in the near term, the composition is somewhat different. A stronger outlook for the United States is largely offset by a weaker outlook for growth in some emerging-market economies, particularly China.
- The outlook for US economic growth is revised up over 2024 and 2025. This is due to greater resilience in consumption, stronger productivity growth and easier financial conditions. The revisions to US growth imply stronger foreign demand for Canadian non-commodity exports.
- The near-term outlook for China has been revised down. The weakness in China’s domestic demand will likely persist because property prices are continuing to fall, which will have an adverse impact on consumer and business confidence.
Canadian outlook
The outlook for growth in Canada is roughly unchanged from the July Report.
- Growth in the second quarter of 2024 was about one-half of a percentage point higher than projected. Government spending and business investment were both stronger than expected. These sources of strength were partially offset by weaker-than-expected consumption, residential investment and exports.
- Growth in the third and fourth quarters of 2024 is now assessed to be somewhat weaker.
- The forecast for growth in 2025 and 2026 is broadly unchanged. While weaker commodity prices are weighing on growth, greater foreign demand—particularly from the United States—and easier financial conditions are providing support. The outlook for population growth is unchanged.
- The outlook for potential output growth is also largely unchanged. As a result, excess supply over the projection horizon is broadly in line with the July Report.
Inflation has been revised down over the near term and is expected to remain close to 2% over the projection horizon.
- Consumer price index inflation in the third quarter of 2024 came in 0.2 percentage points weaker than expected.
- Inflation in the third quarter fell by more than expected primarily due to lower energy prices. Inflation in goods excluding food and energy and in services excluding shelter was also somewhat weaker than expected.
- In 2025, inflation is forecast to be 0.2 percentage points lower, reflecting a lower assumed path for energy prices. The outlook for inflation in 2026 is roughly unchanged.
Key inputs to the projection
The Bank of Canada’s projection is conditional on several key inputs and assumptions about their future path. The Bank regularly reviews these assumptions and adjusts the economic projection accordingly.
- Population growth of people aged 15 and over is estimated to be 3.3% in 2024 and 1.7% on average in 2025–26. The Bank’s assumptions about immigration policy, which are laid out in the July Report, are broadly aligned with recent announcements by the federal government.
- The Bank’s assumptions about the future net inflows of non-permanent residents are subject to risks on both sides.
- The Bank’s assumptions for population growth will be revised as further measures are announced and the impacts of program changes become clearer.
- Potential output growth in Canada is expected to slow from about 2.4% in 2024 to around 1.9% on average over 2025 and 2026, unchanged from the July Report.
- The Bank estimates that the output gap is between -0.75% and -1.75% in the third quarter.
- The projection incorporates information from published budgets and recent fiscal reports that have been tabled at the time of writing.
- Over the projection horizon, the per-barrel prices for oil are assumed to be US$75 for Brent, US$70 for West Texas Intermediate and US$55 for Western Canadian Select. These prices are US$10 lower than in the July Report.
- By convention, the Bank does not forecast the exchange rate in the Monetary Policy Report. The Canadian dollar is assumed to remain at 73 cents US over the projection horizon, as in the July Report.
- The nominal neutral interest rate in Canada is estimated to be in the range of 2¼% to 3¼%. The economic projection assumes that the neutral rate is at the midpoint of this range. The real neutral rate is the rate to which the policy rate would converge in the long run, when output is sustainably at its potential and inflation is at target (i.e., after all cyclical shocks have dissipated). It is a medium- to long-term equilibrium concept. The Bank re-examines estimates of the neutral rate each year in April.