Monetary Policy Report—January 2026
US tariffs and the unpredictability of future trade arrangements are disrupting the Canadian economy. Growth in Canada is expected to remain modest, while inflation stays close to 2%.
The Canadian economic outlook is little changed since the October Report. Canada continues to adjust to a new trade landscape. Affected businesses are reconfiguring their trade and seeking new suppliers and markets. As this adjustment proceeds, capital will start being reallocated and some workers will shift into new roles. This adjustment will take time, and growth will be restrained through the transition.
Uncertainty remains high. The world is becoming more fragmented, and geopolitical risks are elevated. For Canada, the future of trade in North America is an important uncertainty (see In Focus: The review of the Canada-United States-Mexico Agreement).
Summary of economic conditions
The Canadian economy continues to evolve much as expected, although quarterly growth patterns have been quite volatile. Much of this volatility has been driven by large swings in trade and inventories. After expanding rapidly in the third quarter of 2025, growth likely stalled in the fourth quarter. Growth over the second half of 2025 is estimated to have averaged about 1¼%.
Gross domestic product is expected to rise by 1.1% in 2026 and 1.5% in 2027. The pace of expansion is modest due to slow population growth and the impact of the ongoing reconfiguration of trade. Nevertheless, it is still sufficient to gradually absorb excess supply.
Consumer price index (CPI) inflation and CPI inflation excluding indirect taxes were both about 2½% in December. In recent months, most core inflation measures have eased, with CPI‑trim and CPI‑median also now close to 2½%.
Over the projection horizon, inflation remains close to 2%. Downward pressures from excess supply roughly offset upward pressures related to trade reconfiguration and structural adjustments in the economy.
Global economic growth is projected to be solid at around 3%, supported by investment related to artificial intelligence (AI) and stimulative fiscal policies. However, the outlook remains vulnerable. The global economy is still adapting to US tariffs and trade policy uncertainty, geopolitical tensions remain high, and there are questions about the sustainability of the pace of AI-driven investment.