Bank of Canada's economic forecasts too optimistic

The Bank of Canada's new economic forecasts, presented in its July Monetary Policy Report, still look too optimistic, mainly because of its rosy domestic assumptions. Although the bank's lower near-term GDP growth outlook brings it closer in line with our view, this moderate pace of growth is unlikely to be sustained, let alone accelerate. Slowing global economic growth, declining commodity prices and, more importantly, a softening housing market are likely to dampen economic growth late this year and throughout next year. Accordingly, we expect the bank to drop its interest rate tightening bias and move completely to the sidelines before year end.