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Deflationary Shock Yet To Be Reflected

The deflationary shock from the turmoil in the banking sector in the U.S. and Switzerland has yet to be fully reflected in adjustment to growth and inflation forecasts, but downside risks have clearly increased, says FTSE Russell’s ‘Fixed Income Insights Report.’ Canada appears on track to return to pre-COVID levels of inflation, with the recent drop in inflation justifying the Bank of Canada’s policy pause. Consensus GDP forecasts continue to project modest growth through 2024 with upward revisions for the U.S., UK, and the Eurozone for 2023 prior to the banking turmoil. Canadian growth forecasts, however, remained unchanged with the economy only growing 0.5 per cent in 2023, as tighter financial conditions weigh on consumer spending and business investment.

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