Economic Outlook in Canada

The Bank of Canada’s governor, Tiff Macklem, recently hinted at a possible reduction in the policy interest rate. This decision is based on the current state of the economy, which is experiencing downward pressure on inflation due to a weakening economy. Additionally, the upward price pressures caused by trade disruptions need to be contained.

Current Economic State

A survey was conducted to gather insights from respondents about the economic outlook. The results showed that respondents forecast a median GDP growth of 0.8% for 2025 and 1.8% in 2026. However, there is a 35% probability of recession in the next six months, which is a significant concern. About 84.6% of respondents judged the economy to be operating below its potential, indicating a sluggish economic performance.

Key Risks and Opportunities

Respondents identified rising trade tensions as the top downside risk, with 89% of them flagging it as a major concern. Weaker consumer spending and a softer housing market were also cited by 44% of respondents as key risks. On the upside, easing trade tensions and larger-than-expected fiscal stimulus were most frequently identified as opportunities, each by 89% of respondents.

Inflation Expectations

Median expectations for headline CPI inflation were 2.2% at the end of 2025 and 2.0% in 2026. Respondents assigned a 45.5% probability to inflation being in the 2.01%–3.00% range next year, with only a 1.8% chance of it exceeding 4%. These expectations are crucial in determining the future course of monetary policy.

Recent Economic Data

The survey followed weaker-than-expected jobs data for July, which reported a net loss of 41,000 positions, the largest drop since January 2022. Economists at BMO, CIBC, and National Bank said the data support the case for rate cuts later this year. However, the September 17 decision will also depend on upcoming inflation readings and GDP figures.

Conclusion

In conclusion, the economic outlook in Canada is uncertain, with a possible reduction in the policy interest rate on the horizon. The survey results highlight the key risks and opportunities facing the economy, including rising trade tensions and weaker consumer spending. As the economy continues to evolve, it is essential to stay informed about the latest developments in Canada’s mortgage and housing markets. By staying up-to-date, individuals can make informed decisions about their financial futures.