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In an environment of continued high uncertainty, the global recession has intensified and become more synchronous since the Bank’s January Monetary Policy Report Update, with weaker-than-expected activity in all major economies.

Errata: The source for Chart 1 (on page 3) is Global Insight, not the Bank of Canada. As well, in chart 15 (on page18), the base year for the exchange rate index CERI excluding the U.S. dollar should read 1992=100, not 1997=100.

The outlook for the global economy has deteriorated significantly since the October Monetary Policy Report. The financial crisis intensified last autumn and spilled over into an already weak global economy, which, in turn, put further strains on the financial system.

Erratum: In Table 1 Interest Rates, the column "Estimated variable mortgage rate" should read 5.65 per cent for 4 December 2007 not 5.25.

Three major interrelated global developments are having a profound impact on the Canadian economy and making the outlook more uncertain than it was at the time of the July Monetary Policy Report Update.

Three major developments are affecting the Canadian economy: the protracted weakness in the U.S. economy; ongoing turbulence in global financial markets; and sharp increases in the prices of certain commodities — particularly energy. The first two developments are evolving roughly in line with expectations outlined in the April Monetary Policy Report.

Growth in the global economy began to slow in the fourth quarter of 2007 and the first quarter of 2008. This reflected the effects of the slowdown in the U.S. economy and ongoing dislocations in global financial markets.

The Canadian economy grew broadly in line with the Bank’s expectations in the second half of 2007.

There have been a number of significant economic and financial developments since the time of the July Monetary Policy Report Update.

Economic growth and inflation in Canada in the first half of this year have been stronger than expected in the April Monetary Policy Report.

Growth in the Canadian economy has been essentially in line with the expectations set out in the Bank’s January Monetary Policy Report Update.

The global economy has continued to expand robustly. However, U.S. economic growth slowed in 2006, with the weakness concentrated in the automotive and housing sectors.