That said, as the economy gains momentum and approaches full capacity, greater investment—including through new firm creation—could lead to potential output growing faster than we assume in the base case. Some of the tools used by the Bank have tended to underestimate growth in potential output during periods of expansion, leading to upward revisions later on.
If potential growth turns out to be greater than we expect, the economy could expand further before generating inflationary pressures. Under our baseline outlook for growth and potential, the economy will absorb its excess capacity sometime in the first half of 2018, a bit sooner than we projected in January.