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The Canadian economy is once again growing robustly, and the recovery from COVID-19 continues. The Bank is forecasting growth of around 5 percent in 2021, 4 ¼ percent in 2022 and 3 ¾ percent in 2023.

This paper presents updated estimates of potential output growth for the global economy through 2022. Global potential output growth is expected to decline sharply in the aftermath of the COVID-19 pandemic and recover partially by the end of the projection horizon of the October 2020 Monetary Policy Report.

The Canadian economy regained strong momentum in 1999 as the U.S. economy remained vigorous, the global economy recovered, and commodity prices moved upwards.

The Canadian economy entered 2022 in a strong position. The Bank is forecasting growth of 4% in 2022 and about 3½ % in 2023.

We use a suite of risk-assessment models to examine the possible impact of a hypothetical house price correction, centred in the Toronto and Vancouver areas. We also assume financial stress significantly amplifies the macroeconomic impact of the house price decline.

Defined-benefit (DB) pension plans account for the majority of employer pension fund assets. In recent years, a number of DB plans have become underfunded, in sharp contrast to the 1990s, when many plans had large actuarial surpluses. The deterioration in the financial health of DB plans has underscored various longer-term structural issues that could make it increasingly difficult for plan sponsors to manage the financial risks of these plans. Tuer and Woodman examine how funding deficits, a greater focus on plan liabilities, a low yield environment, and changing investment beliefs are influencing investment decisions in the Canadian DB pension sector. They review the funding of DB plans, changing views on the equity-risk premium, and the shift towards liability-centred approaches to investment and how these developments are affecting pension sector investment. They also consider additional influences on the pension sector, including the limited supply of long-term bonds, the elimination of the foreign-property rule, and the movement towards fair-value accounting and a financial-economics approach to actuarial valuation, as well as their implications for financial markets.

Innovations in communications and information technology and the related globalization of financial markets have created the potential for important changes to the structure of Canadian equity markets. Established marketplaces can now compete more effectively on an inter-regional and international basis. At the same time, reduced costs have lowered the barriers to entry faced by new competitors known as alternative trading systems (ATSs). In response to this heightened competition, established Canadian stock exchanges have taken measures to improve market quality. While regulators see innovation as positive for the development of Canadian markets, there is some concern that market liquidity may be fragmented in the short run. The Canadian Securities Administrators have proposed a framework that attempts to address this issue and that would allow ATSs to compete with traditional exchanges for the first time. The authors provide an overview of the Canadian equity market and its structure, focusing on these recent developments.

We propose an early warning model for predicting the likelihood of a financial stress event for a given future time, and examine whether credit plays an important role in the model as a non-linear propagator of shocks.

While monetary stability through low inflation is crucial to good economic performance, our economy cannot function properly unless it is also supported by an efficient and stable financial system. And as the world economy becomes increasingly interconnected, sound macroeconomic policies and sound financial systems across all countries are even more essential.