Monetary Policy Report - May 2001

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At the time of the November 2000 Monetary Policy Report, although signs of the anticipated slowing of the U.S. economy were becoming apparent, the momentum of the global economy was considered strong.

The U.S. slowdown has, in fact, turned out to be more pronounced than expected, and, largely as a consequence, growth in global demand has been weaker than projected. A weaker global economy, together with declines in energy prices from earlier peaks, has reduced the risk of inflationary pressures worldwide.

The abrupt easing in the pace of U.S. economic expansion, particularly in the markets for motor vehicles and for information and telecommunications equipment, contributed importantly to a slowing in economic growth in Canada towards the end of last year and into 2001. The pace of expansion in both the U.S. and Canadian economies during the first half of this year is now projected to be much weaker than expected last November, as inventory imbalances in those sectors experiencing weaker demand are corrected. As a result, the Canadian economy will probably be operating somewhat below capacity by mid-2001, suggesting some downward pressure on core CPI inflation over the remainder of the year.

MPR Summary - May 2001