The government’s plan to trim the population will hit potential GDP growth and, given the headwinds for residential investment, reduce the chance of GDP reaching that lower potential level. Rents on new leases are set to fall, which presents downside risks to house prices and should give the Bank of Canada even greater confidence that inflation is unlikely to take off again. That said, given the upside risks to wage growth from a fall in the labour force, we have only nudged down our terminal policy rate forecast.
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