The recession is over, the Bank of Canada said in its quarterly Monetary Policy Report released Thursday.

The Canadian economy will grow 1.3% in the current quarter, the bank said.

The return to growth after three quarters of decline signals the end of the recession, defined as two consecutive quarters of shrinkage.

Growth will accelerate through late 2009 and by the first half of 2010, the Canadian economy will be booming with along with 4% growth. But that will begin to taper off to less than 3% by the last half of 2011, the bank said.

“Stimulative monetary and fiscal policies, improved financial conditions, firmer commodity prices, and a rebound in business and consumer confidence are spurring domestic demand growth,” the report said.

“However, the higher Canadian dollar, as well as ongoing restructuring in key industrial sectors, is significantly moderating the pace of overall growth.”

The outlook is not much changed from its April report, “although the growth profile is slightly altered by a faster rebound in domestic demand.”

The bank is projecting that real gross domestic product, a measure of the economy, will fall 2.3% this year, then grow 3% in 2010 and 3.5% in 2011.

However, the economy will not reach capacity, when supply and demand are in balance, until 2011.

Inflation, which has fallen with energy prices, will not increase to the target rate of about two% until the second quarter of 2011.

But “significant upside and downside risks remain to the inflation projection,” particularly from the volatile loonie, the bank said.

Bank of Canada Monetary Policy Report

http://www.bankofcanada.ca/en/mpr/pdf/2009/mpr230709.pdf