Thank you very much, Chair.
Tiff and I are very pleased to be with you this morning to discuss our April monetary policy report, which the bank published last week.
I should say at the outset that sessions such as these are an important part of the bank's accountability to Parliament and, through Parliament, our accountability to Canadians. We greatly appreciate members taking the time and the focus to drill down on our views on what's happening in the Canadian economy and what the prospects are for the global and Canadian economies.
In the report we note that global economic growth has evolved broadly, as anticipated in January. In the United States, the economic expansion is continuing at a modest pace, with gradually strengthening private demand partly offset by accelerated fiscal consolidation.
Significant policy stimulus has been introduced in Japan.
Europe, in contrast, remains in recession, with economic activity constrained by fiscal austerity, low confidence and tight credit conditions.
After picking up to very strong rates in the second half of 2012, growth in China has eased.
Commodity prices received by Canadian producers remain elevated by historical standards, and despite recent volatility, overall they are little changed since January.
The bank expects global economic activity to grow modestly in 2013 before strengthening over the following two years. Following a weak second half last year, growth in Canada is projected to regain some momentum through 2013 as net exports pick up and business investment returns to more solid growth.
Consumer spending is expected to grow at a moderate pace over the projection horizon, while residential investment declines further from historically high levels. Growth in total household credit has slowed, and the bank continues to expect that the household debt-to-income ratio will stabilize near current levels.
Despite the projected recovery in exports, they're likely to remain at their pre-recession peak until the second half of 2014, owing to restrained foreign demand and ongoing competitiveness challenges, including the persistent strength of the Canadian dollar.
On a quarterly basis, growth in Canada is expected to pick up to about 2.5% in the second half of this year. Despite this expected rebound, with the weak growth in the second half of last year, annual average growth is projected to be 1.5% in 2013.
The economy is then projected to grow by 2.8% in 2014 and 2.7% in 2015, reaching full capacity by the middle of 2015. This is later than the bank had expected in January.
Total CPI and core inflation have remained low in recent months, broadly in line with our expectations in January. Muted core inflation reflects material excess supply in the economy, heightened competitive pressures in the retail sector, and some special factors.
Total CPI inflation has been restrained by low core inflation and declining mortgage interest costs, with some offset from higher gasoline prices.
Both total and core inflation are expected to remain subdued in coming quarters before gradually rising to 2% by mid-2015, as the economy returns to full capacity, special factors subside, and inflation expectations remain well anchored.
The inflation outlook in Canada is subject to upside and downside risks, which are similar to those identified in January.
The three main upside risks relate to the possibility of stronger-than-expected growth in the United States and global economies, a sharper-than-expected rebound in Canadian exports, and renewed momentum in Canadian residential investment.
The three main downsized risks related to the European crisis, more protracted weakness in business investment and exports in Canada, and the possibility that growth in Canadian household spending could be weaker.
Overall, the bank judges that the risks are roughly balanced over the projection horizon.
Reflecting all of the factors I've listed, on April 17 the bank maintained the target for the overnight rate at 1%, and with continued slack in the Canadian economy, the muted outlook for inflation and the constructive evolution of imbalances in the household sector, the considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required consistent with achieving the 2% inflation target.
With that, Chair, Tiff and I would be very pleased to take your questions.