\nArticle content<\/h2>\n A lot has happened since October. Most importantly, a second and then third wave of COVID-19 infections have swept through the country, pushing the death count to more than 23,700 and the total number of cases past 1.1 million.<\/p>\n
But the gravity of the public health threat might have coloured the assumptions officials and forecasters were making about the economy.<\/p>\nIn October, the Bank of Canada predicted that gross domestic product (GDP) would increase by 4.2 per cent in 2021, and then in January dropped that estimate to four per cent. Policymakers assumed at the start of the year that the second wave would cause GDP to contract in the first quarter. The opposite happened, because entrepreneurs and executives adapted to COVID-19 restrictions far better than forecasters had realized. That meant there was greater supply than earlier in the crisis, and households, flush with savings, had plenty of demand.<\/p>\n
The result: an annual growth rate of seven per cent in the first quarter, a stunning turn of events that forced the Bank of Canada to raise its growth outlook in 2021 to 6.5 per cent. If that trajectory holds, Canada will fill in the hole left by the COVID-19 crisis late this year, much sooner than many had expected.<\/p>\n
\u201cGoverning Council is more confident in the resilience of the economy,\u201d Macklem said in a statement at the beginning of his quarterly press conference on April 21. \u201cCanadian households and businesses are adapting to the virus, finding new ways to shop, serve customers and work remotely. More important still, the rollout of vaccines is progressing, and we expect better times ahead.\u201d<\/p>\n<\/section>\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\n<\/p>\n\n Loonie climbs as Bank of Canada says economy healing faster than expected <\/span><\/h3>\n<\/li>\n Bank of Canada backs tighter mortgage stress test amid hot housing market <\/span><\/h3>\n<\/li>\n<\/ol>\n<\/section>\nThe stronger outlook meant Macklem had to adjust his guidance for how long executives and investors should expect him to leave interest rates pinned near zero. The Bank of Canada advised in a new policy statement that the outlook now suggests policymakers are on track to achieve their inflation goals by the second half of 2022, although Macklem told reporters that he wouldn\u2019t necessarily feel obliged to immediately raise interest rates, stressing that the context will matter.<\/p>\n
Policymakers also said they would taper their weekly purchases of Government of Canada bonds to $3 billion from $4 billion, a shift that most on Bay Street had expected, given the stronger outlook. Still, interest rates and the dollar jumped, as traders adjusted their assumptions about the relative value of Canadian financial assets. The Bank of Canada\u2019s announcement made it the first major central bank to ease back on the throttle of extraordinary monetary policy, making Canada a more attractive target for bond investors.<\/p>\n
That could present Macklem and his deputies with a communications challenge, as they stopped well short of declaring victory in their battle against the pandemic. The Bank of Canada emphasized in its latest quarterly economic report that \u201cachieving full recovery will take time\u201d and that \u201cstrong and sustained growth will be needed to overcome the pandemic\u2019s severe economic impacts.\u201d<\/p>\n<\/section>\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\nSome will argue the Bank of Canada is being reckless. The economies of the United States and China are growing faster than expected, which should keep upward pressure on commodity prices and act as a magnet for the world\u2019s exporters. That\u2019s good for Canada; so good that the central bank said the positives from trade will \u201csubstantially exceed\u201d whatever headwinds come from a stronger dollar.<\/p>\n
Historic levels of fiscal stimulus in Canada will also propel the economy forward, though the housing market appears to be in danger of overheating, if it hasn\u2019t already. Macklem conceded that he\u2019s somewhat worried, but stopped short of saying the situation demanded higher interest rates.<\/p>\n
That\u2019s because policymakers remain troubled by the outlook. There still are 300,000 fewer people working today than at the beginning of the pandemic, and the Bank of Canada noted the shortfall is actually about 475,000 if you take into account where population growth would have pushed employment if not for the epic recession.<\/p>\n
\u201cWe are making good progress,\u201d Macklem said. \u201cIt is still going to take some time to get to a full recovery.\u201d<\/p>\n
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