OTTAWA, Ont. – The Bank of Canada released the January update to the Monetary Policy Report, which discusses current economic and financial trends in the context of Canada’s inflation-control strategy. The Canadian economy is judged to have been operating at, or just above, its production capacity at the end of 2006, following weaker-than-expected growth in the second half of last year.

“This slowdown stemmed from reduced demand for Canadian exports – related to weakness in the US automotive and housing sectors – and from the need for Canadian businesses to adjust inventories,” read a statement from David Dodge, Governor of the Bank of Canada.

Looking ahead, real GDP growth is now expected to average about 2.5% in the first half of 2007, rising to about 2.75% in the second half of this year. In 2008, growth is projected to remain in line with the growth of potential output (estimated at 2.8%), keeping the economy operating near its capacity throughout the projection period. Expressed on an average annual basis, this profile implies growth of 2.3% in 2007 and 2.8% in 2008. Total inflation should average just above 1% in the first half of this year, returning to 2% in early 2008.