(Corrects typo in final paragraph) OTTAWA, Jan 20 (Reuters) - The arrival of a COVID-19 vaccine and strong foreign growth is brightening the outlook for the Canadian economy in the medium term, but the near-term remains choppy with a contraction expected in the first quarter, the Bank of Canada said on Wednesday. The central bank, outlining its quarterly economic forecasts, said that despite the stronger outlook it does not expect inflation to return sustainably to target until 2023, keeping interest rates at historic lows until that point. “The medium-term outlook is stronger than in the October Report because of the positive effects from vaccines, greater fiscal stimulus, stronger foreign demand and higher commodity prices,” the Bank of Canada said. But the central bank warned the near-term would be choppy, with a 2.5% annualized contraction in the first quarter of 2021 and full year growth now expected to be 4.0%. Despite the rough start, economic activity is now expected to return to pre-pandemic levels in late 2021, it said. The Bank of Canada revised up its growth forecast for 2022 to 4.8% from the 3.7% it predicted in October and put 2023 growth at 2.5%. (Reporting by Steve Scherer)