Bank of Canada Governor Tiff Macklem acknowledged Wednesday that the central bank once again missed the mark on its economic forecast, this time after predicting Canada would avoid a recession in 2026."We've seen a lot of volatility," Macklem told reporters after the Bank of Canada held its benchmark interest rate at 2.25%.Blacklock's Reporter said the admission came weeks after the central bank's April 29 Monetary Policy Report projected the economy would avoid recession this year. Statistics Canada reported May 29 that the economy has contracted since October, meeting the definition of a recession."Yes, fourth-quarter GDP was quite a bit weaker than we thought," said Macklem. "It was a miss."Despite the weaker-than-expected economic performance, Macklem said the bank still expects growth to return in the second quarter."We do think growth will resume in the second quarter," he said. "We expect to see continued expansion of consumer spending. We think there will be a little more stability in the housing market."Asked what evidence supported that outlook given the bank's latest forecasting error, Macklem conceded there is limited data available."I'll be the first one to admit that, although we're actually well into the second quarter, we don't have that much data yet," he said. "There's always uncertainty. We've seen a lot of volatility."Reporters also pressed Macklem on whether Canada is currently in a recession."Based on the data we've seen to date, the economy is weak but it is not clearly in recession," he replied.Macklem said economists generally define a recession as a significant and broad-based decline in economic activity lasting more than one quarter."If you look at the data we've got, based on that definition, the economy is weak but it is not clearly in recession," he said..The governor pointed to relatively stable employment figures and growth in more than half of Canadian industries as reasons for avoiding the recession label."The unemployment rate has been relatively stable in the 6.5 to 7% range," said Macklem. "So far we have not seen a significant, broad-based decline in economic activity. Recession is not the word I would use. I would describe the economy as weak. It hasn't grown really in the last year."Macklem warned that policymakers face a difficult balancing act as sluggish growth coincides with rising inflation."Economic weakness combined with rising inflation is a dilemma for monetary policy," he said. "Rising rates to dampen inflation could further slow the economy. Easing rates to support growth increases the risk higher inflation becomes persistent."The Bank of Canada has faced criticism over a series of inaccurate forecasts in recent years. In 2020, officials predicted inflation would remain below 2% and assured Canadians that interest rates would stay low for an extended period. In 2021, the Bank said inflation was likely "transitory" and projected rates would peak just above 5%.Instead, inflation climbed to 6.7% within six months.Macklem has previously acknowledged the Bank's forecasting failures."Did we get everything right? No," he told a Commons finance committee hearing in 2022.The Bank of Canada left its key overnight lending rate unchanged at 2.25%, where it has remained since October. Its next interest rate decision is scheduled for July 15.
