After recovering vigorously from last year’s mild downturn, economic activity in Canada seems to have maintained its momentum, in contrast to the United States. Employment growth has remained strong and is set to continue so, albeit at a slower pace. Although some signs of softening have recently appeared, partly connected to global uncertainties, the sustained expansion of consumer demand and a further pick-up of business investment should ensure that any moderation will be mild and short-lived, and growth should return to above potential rates some time next year.

The budget surplus has declined significantly and is expected to remain modest in coming years, leaving limited room for new spending. The monetary stance is still expansionary. With the economy already close to full capacity and core inflation near the top of the target range, a gradual but steady monetary tightening will be required to keep price pressures under control.