Highlights
In its October Monetary Policy Report, the Bank of Canada, which lowered its policy rate by 25 basis points to 2.25 percent, projects GDP to grow 1.2 percent this year, with a weak 0.75 percent in second half. U.S. trade actions and related uncertainty are having severe effects on targeted sectors including autos, steel, aluminum, and lumber, the central bank said. This should dampen exports along with slowing U.S. demand.
Exports should resume in 2026, although overall GDP is seen slowing down further to 1.1 percent as household spending loses steam, averaging 1.5 percent in 2026 and 2027, down from 2.8 percent in 2025. Much of this trend is explained by population growth expected to average 0.5 percent over 2026 and 2027, down from 1.5 percent this year and 3.3 percent in 2024. High unemployment will also weigh. The magnitude of this impact depends heavily on the extent to which the trade conflict affects the rest of the economy, the report said.
Business investment is also expected to remain weak, including in the oil and gas sector.
Investment is seen recovering in 2027, when GDP growth is projected to pick up to 1.6.
Overall, excess supply is only expected to be taken up"gradually."
Government spending is expected to grow at a moderate. Pace over the projection horizon. More details on spending will be unveiled with the budget to be tabled Nov. 4.
Against the backdrop of underwhelming growth, inflation is expected to settle around 2 percent early next year, inflationary pressure from tariffs and the restructuring of global trade and domestic production are offset by downward pressure from excess supply.
The MPR still assumes ongoing uncertainty related to trade tensions. It bases its projections on an average U.S. tariff rate on Canadian exports and imports of 5.9 percent, up from 4.4 percent in July and 0.1 percent before 2025. The average Canadian tariff rate on the U.S. is assumed at 1.0 percent, down from 2.6 percent in July and 0.0 percent before 2025. The central bank uses tariffs in place or officially agreed on as of October 22.
For the first time since January, the BoC provided baseline projections after having used alternative scenarios, noting that despite ongoing uncertainty, the impact of U.S trade policy is becoming"clearer".
Exports should resume in 2026, although overall GDP is seen slowing down further to 1.1 percent as household spending loses steam, averaging 1.5 percent in 2026 and 2027, down from 2.8 percent in 2025. Much of this trend is explained by population growth expected to average 0.5 percent over 2026 and 2027, down from 1.5 percent this year and 3.3 percent in 2024. High unemployment will also weigh. The magnitude of this impact depends heavily on the extent to which the trade conflict affects the rest of the economy, the report said.
Business investment is also expected to remain weak, including in the oil and gas sector.
Investment is seen recovering in 2027, when GDP growth is projected to pick up to 1.6.
Overall, excess supply is only expected to be taken up"gradually."
Government spending is expected to grow at a moderate. Pace over the projection horizon. More details on spending will be unveiled with the budget to be tabled Nov. 4.
Against the backdrop of underwhelming growth, inflation is expected to settle around 2 percent early next year, inflationary pressure from tariffs and the restructuring of global trade and domestic production are offset by downward pressure from excess supply.
The MPR still assumes ongoing uncertainty related to trade tensions. It bases its projections on an average U.S. tariff rate on Canadian exports and imports of 5.9 percent, up from 4.4 percent in July and 0.1 percent before 2025. The average Canadian tariff rate on the U.S. is assumed at 1.0 percent, down from 2.6 percent in July and 0.0 percent before 2025. The central bank uses tariffs in place or officially agreed on as of October 22.
For the first time since January, the BoC provided baseline projections after having used alternative scenarios, noting that despite ongoing uncertainty, the impact of U.S trade policy is becoming"clearer".
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.
