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PBO expects Bank of Canada done hiking rates, forecasts economic growth of 1% in 2023

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The Parliamentary Budget Office has trimmed its forecast for Canada’s economic growth this year.

The PBO’s latest economic and fiscal outlook predicts the economy will grow by 1.0 per cent this year followed by 1.6 per cent in 2024. The outlook compares with the agency’s October forecast for growth of 1.2 per cent for 2023 and 2.3 per cent in 2024.

It expects a decline in residential investment and weakness in consumer spending in the first half of the year, while businesses reduce their inventory investment over the course of 2023 as the growth in sales slows.

The PBO also predicts the Bank of Canada will keep its key interest rate target on hold at 4.5 per cent for the rest of 2023 before starting to cut in 2024.

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The federal budget watchdog forecasts the central bank will begin cutting its key policy rate in January 2024 by a quarter of a percentage point at each of its eight fixed announcement dates next year.

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The PBO’s outlook projects a federal budget deficit of $36.5 billion for Ottawa’s 2022-23 fiscal year and an increase in the shortfall to $43.1 billion for 2023-24 due to a slowdown in revenue growth and higher program expenses.

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