The economy made a strong start to the year, but that was largely due to temporary factors that will soon fade. With spare capacity emerging, particularly in the labour market, downward progress on inflation is becoming clearer. Changes to immigration policy will ease some of the Bank of Canada’s concerns about the persistence of shelter inflation, raising the chance of more aggressive policy loosening than elsewhere. We expect the Bank to cut interest rates from the current 5.00% to 3.75% by the end of 2024 and 2.50% in 2025. We expect looser policy to help drive a recovery in GDP growth to 2.3% in 2025, from 1.0% this year.
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