In the November Monetary Policy Report, the timing and extent of the recovery in economic activity in Canada this year was seen as depending crucially on geopolitical developments and on how quickly consumer and business confidence would return to normal. Two polar scenarios were envisaged. In one, consumer and business confidence stayed fragile through 2002, contributing to sluggish growth. In the other, confidence was restored quickly, leading to robust growth early this year.

While robust growth is not yet underway, geopolitical developments have evolved positively, and consumer confidence has improved. Thus, the likelihood that economic growth this year will be between these two scenarios, and broadly in line with the Bank’s “working assumptions” of last November, has increased.1 This implies that the economy should gain significant momentum as the year progresses. However, business confidence remains weak in many countries, with the recovery in global business investment being the major area of uncertainty for the outlook. Relative to its assumptions of last November, the Bank now expects the amount of economic slack in 2002 to be somewhat greater.