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In the April Monetary Policy Report, the Bank noted that inflation was well above its 2 per cent target and that short-term inflation expectations had edged up.

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Canadian World War I War Bond

The $100 10-year bond of the FirstWar Loan is slightly larger than a sheet of legal-sized paper. It forms part of the National Currency Collection, Bank of Canada.

Photographed by Gord Carter, Ottawa.

Since the April Monetary Policy Report, there have been a number of unanticipated developments that have changed the outlook for inflation and economic activity in Canada.

This section of the Financial System Review examines the recent performance of the Canadian financial system and the factors, both domestic and international, that are influencing it.

Cover page

Seventeenth-Century English Tradesmen's Tokens

The tokens pictured on the cover are part of the National Currency Collection.

Photographed by Gord Carter, Ottawa.

The global economic outlook has been clouded by a high degree of uncertainty, accentuated most recently by the war in Iraq.

In the year just ended, the global economy faced a number of exceptional challenges, reflecting a wide range of economic, financial, and geopolitical risks and uncertainties. These included the fallout from the September 2001 terrorist attacks, corporate accounting scandals, stock market volatility, and developments in the Middle East. Despite this global backdrop, the Canadian economy outperformed virtually all other industrial economies, growing by about 3 1/4 per cent and creating 560,000 jobs, while inflation expectations remained well anchored to the Bank of Canada’s 2 per cent inflation-control target.

At the time of the October Monetary Policy Report, the Bank projected that core inflation would rise in the fourth quarter of 2002, reflecting a combination of one-off factors - including the rise in insurance premiums - and the “echo effect” from developments towards the end of 2001.