Highlights
In its quarterly Monetary Policy Report, the Bank of Canada forecast that GDP growth will strengthen from 1.3% in 2024 to 1.8% in 2025 and 2026. Growth in GDP per person is projected to pick up as lower interest rates and rising incomes support spending. The projected increase in overall GDP growth is more modest than it was in October, largely due to lower population growth that reflects new federal immigration policies.
There are risks around the bank's outlook, and"Governing Council is equally concerned with inflation rising above the 2% target or falling below it," the bank said in the report. Absent the threat of tariffs, the risks to the inflation outlook are"roughly balanced."
The economic outlook presented in this MPR does not incorporate any new U.S. tariffs, although it does recognize that the threat of tariffs is already affecting financial markets and business decisions.
The new U.S. administration has threatened significant tariffs on imports from its trading partners, including Canada. This has prompted discussion of retaliatory tariffs. While many details remain unknown, broad-based tariffs would severely disrupt global trade. In Canada, there are already signs that the threat of tariffs is weighing on consumer and business confidence and investment intentions.This threat has also contributed to the recent depreciation of the Canadian dollar.
The key forecasts from the MPR:
Canada 2025 CPI +2.3% (+2.2% projected in October); 2026 CPI +2.1% (+2.0%)
Canada 2024 GDP +1.3% (+1.2%); 2025 GDP +1.8% (+2.1%); 2026 GDP +1.8% (+2.3%)
Q4 2024 GDP annualized rate +1.8% (+2.0%); Q1 2025 GDPs +2.0% (the first estimate)
There are risks around the bank's outlook, and"Governing Council is equally concerned with inflation rising above the 2% target or falling below it," the bank said in the report. Absent the threat of tariffs, the risks to the inflation outlook are"roughly balanced."
The economic outlook presented in this MPR does not incorporate any new U.S. tariffs, although it does recognize that the threat of tariffs is already affecting financial markets and business decisions.
The new U.S. administration has threatened significant tariffs on imports from its trading partners, including Canada. This has prompted discussion of retaliatory tariffs. While many details remain unknown, broad-based tariffs would severely disrupt global trade. In Canada, there are already signs that the threat of tariffs is weighing on consumer and business confidence and investment intentions.This threat has also contributed to the recent depreciation of the Canadian dollar.
The key forecasts from the MPR:
Canada 2025 CPI +2.3% (+2.2% projected in October); 2026 CPI +2.1% (+2.0%)
Canada 2024 GDP +1.3% (+1.2%); 2025 GDP +1.8% (+2.1%); 2026 GDP +1.8% (+2.3%)
Q4 2024 GDP annualized rate +1.8% (+2.0%); Q1 2025 GDPs +2.0% (the first estimate)
Definition
Since 2009 the Bank of Canada (BoC) has regularly updated its economic view via a quarterly Monetary Policy Report. This presents base-case projections for inflation and growth in the Canadian economy as well as an assessment of the risks. The forecast provides a platform upon which the monetary authority can base its decisions with regards to any changes in official interest rates (and/or unconventional monetary instruments).
Description
Each quarter, the MPR gives the financial markets a view of the BoC's governing council thinking. This provides important guidance especially since the BoC does not publish minutes from its policy setting meetings. The report is released at the same time as the policy announcement is made.
