Losses experienced by Canadians on their financial holdings, either directly or via their pension funds, and concerns about the employment outlook will also restrain domestic consumption this year. In addition, uncertainty about the economic outlook and strained financial conditions will likely lead to declines in investment spending this year.
Given these factors, the Canadian economy could continue to contract into the second half of this year. As noted in our March interest rate decision, the Bank now expects the output gap will be considerably wider than before, and we do not expect it to begin to close until the first quarter of next year, at the earliest.