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Bank of Canada says pandemic's second wave to hit near term growth

FILE PHOTO: The downtown skyline and CN Tower are seen past cranes in the waterfront area envisioned by Alphabet Inc's Sidewalk Labs as a new technical hub in the Port Lands district of Toronto, Ontario, Canada March 29, 2019. Picture taken March 29, 2019. REUTERS/Chris Helgren

OTTAWA (Reuters) - Canada’s initial rebound from the COVID-19 economic crisis was stronger than expected, but the second wave is poised to cause a “more pronounced” near-term slowing in the recuperation phase, the Bank of Canada said on Wednesday.

The central bank expects a smaller economic contraction in Canada in 2020, as compared with its July update, followed by slower than previously forecast economic growth in 2021. It did not change its growth outlook for 2022, with economic activity set to return to pre-pandemic levels at the start of that year.

The Bank noted its projections assume new outbreaks will be managed by local and targeted containment measures, but said the impacts could be more severe than anticipated.

“There is a serious risk, however, that broader or more intensive restrictions could be required,” it said in its quarterly Monetary Policy Report.

The bank also said it did not expect the output gap to close until 2023. It forecast overall inflation to remain below its 2% target through 2022.

Reporting by Julie Gordon and David Ljunggren; Reuters Ottawa bureau; julie.gordon@tr.com, 647 480 7891

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