Whereas inflation eased to 2.3% in March, the Financial institution cautioned that short-term inflation expectations have risen as companies and customers anticipate ongoing commerce disruptions.

Employment situations have additionally weakened, with job losses recorded in March. Moreover, family spending has proven indicators of slowing, and enterprise funding stays subdued amid rising uncertainty.

“Our focus will likely be on guaranteeing that Canadians proceed to believe in worth stability by way of this era of world upheaval,” the Financial institution mentioned. It emphasised that financial coverage “can not resolve commerce uncertainty” however should give attention to sustaining inflation management and supporting financial progress.

As a substitute of a typical forecast, the Financial institution’s April Financial Coverage Report (MPR) outlines two potential situations reflecting divergent outcomes primarily based on future commerce developments:

State of affairs 1: Extended uncertainty, however restricted injury

This comparatively optimistic situation assumes most tariffs will finally be negotiated away, though uncertainty may persist into late 2026. Beneath this situation, GDP progress would gradual briefly round mid-2025 however then steadily decide up, averaging about 1.6% yearly by way of 2027. Inflation may briefly fall under the Financial institution’s 2% goal because of the removing of the patron carbon tax however is predicted to stabilize across the goal thereafter.

• GDP progress slows however avoids contraction, averaging 1.6% in 2025, barely decrease than the January forecast of 1.8%.
• Progress stays subdued, reaching 1.4% in 2026 and rising modestly to 1.7% in 2027.
• Inflation briefly dips to about 1.5% in mid-2025 following the removing of the patron carbon tax, returning to the two% goal later.

State of affairs 2: Full-blown commerce battle and recession

Beneath this extra extreme situation, a sustained world commerce battle leads Canada right into a pronounced recession all through 2025, adopted by a gradual and uneven restoration. GDP progress would contract considerably, averaging round -1.2% throughout 2025. Inflation would spike above 3% briefly in mid-2026 as a consequence of persistent tariff pressures however would finally ease again to the two% goal by 2027.

• GDP contracts for 4 consecutive quarters, leading to a pointy downturn with total progress of simply 0.8% in 2025 and an additional decline of -0.2% in 2026.
• Progress recovers modestly to 1.6% in 2027, reflecting important injury to potential financial output and family incomes.
• Inflation mirrors State of affairs 1 initially, however then rises above 3% by 2026 as a consequence of ongoing tariff impacts earlier than normalizing to the two% goal.

Why no base-case forecast?

The Financial institution mentioned the sheer pace and scale of U.S. commerce coverage shifts make a conventional financial projection unworkable.

“The unpredictability of U.S. commerce coverage, and the pace and magnitude of the shifts, are making the financial outlook very unsure,” it famous.

Till the trail ahead turns into clearer, the Financial institution mentioned it can proceed cautiously and stay centered on its inflation mandate. “Governing Council will proceed rigorously, with specific consideration to the dangers and uncertainties going through the Canadian economic system,” it mentioned. “Our focus will likely be on guaranteeing that Canadians proceed to believe in worth stability by way of this era of world upheaval.”

Economists anticipate extra cuts if commerce tensions persist

The Financial institution’s resolution to forgo a base-case forecast underscores simply how fluid the present state of affairs is, with BMO Chief Economist Douglas Porter noting that attempting to overanalyze the Financial institution’s wording misses the larger level.

“There’s not a lot sense parsing each phrase from the Financial institution when the financial panorama can shift so abruptly in coming weeks, and the Financial institution—like the remainder of us—will likely be reacting and responding to these shifts,” he wrote.

Porter mentioned the “deep commerce uncertainty” is more likely to weigh closely on financial progress within the coming quarters, easing inflation pressures and paving the best way for extra charge cuts.

“We consider that the deep commerce uncertainty will weigh closely on progress in Q2 and Q3, blunting inflation pressures, and finally prompting the Financial institution to trim charges additional, in the end taking them barely under impartial—which might be totally applicable in a world of commerce trauma.”

By the tip of 2025, many of the Huge 6 banks anticipate the Financial institution of Canada’s coverage charge to settle between 2.00% and a couple of.25%.

BoC coverage charge forecasts from the Huge 6 banks