Let me say at the outset that there is some uncertainty about the exact level of capacity or potential in the economy, the level of the economy. But we do a variety of estimates, and then we at the governing council—Mr. Macklem, myself, and four deputy governors—use our judgment, on top of very statistical techniques, to both estimate the level of potential.... Currently we think the level of potential is about 1.25 percentage points above the level at which the Canadian economy is operating at present, so there's what we call a material output gap, a difference between the level at which we're operating and the level of the economy.
The other thing we very importantly have to estimate, and we update this every October, is the rate at which that level of potential grows: Canadians come into the workforce, they work additional hours, there's productivity growth. The sum of those two, the so-called labour input and productivity growth, is the rate of growth of potential in the economy.
Again, it's an estimate. Different people can have slightly different opinions. But it's very important for us to develop that estimate, because over time the difference between the level at which the economy is operating and the potential of the economy has an impact on inflation in Canada, and therefore we calibrate monetary policy appropriately.
Right now we see about a 1.25 percentage point difference between the level of potential and where the economy is operating. Our estimate, as of last year, which holds for today, is a 2.1 percentage point rate of potential growth.
In this quarter, the second quarter, we estimate that the Canadian economy will grow about 1.8 percentage points, but as of the third quarter and fourth quarter, the average of those two is about 2.5 percentage points of growth. So we would start to close that gap—just following the math—and have the impact.