Monetary Policy Report—January 2026
The outlook for the Canadian economy is evolving largely as anticipated. Economic growth is expected to average around 1¼% over the projection horizon, and inflation remains near 2%.
The outlook for economic growth and inflation in Canada remains broadly similar to that in the October Report (Chart 21).
Changes to the projection
Canadian outlook
Statistics Canada revisions to historical gross domestic product (GDP) data show that the Canadian economy was stronger going into 2025 than previously thought (Chart 22). By the second quarter of 2025, the level of GDP is revised up by 1.7%, mainly reflecting increased investment, exports and consumption. The revisions also suggest more robust growth in trend labour productivity, partly because stronger growth in investment raised the level of the capital stock. Potential output has thus been revised up by almost as much as GDP, so the amount of slack in the economy remains largely unchanged.
The projection for GDP growth, compared with that in the October Report, is unchanged in 2026 and slightly weaker in 2027. The outlook for consumer price index inflation is marginally higher in 2025 and marginally lower in 2026, reflecting recent fluctuations in food and energy prices (Table 2 and Table 3).
| 2024 | 2025 | 2026 | 2027 | |
|---|---|---|---|---|
| Consumption | 1.2 (1.3) | 1.2 (1.5) | 0.7 (0.8) | 0.6 (0.9) |
| Housing | 0.0 (-0.1) | 0.1 (0.1) | 0.2 (0.2) | 0.2 (0.1) |
| Government | 1.0 (1.1) | 0.6 (0.7) | 0.7 (0.7) | 0.6 (0.4) |
| Business fixed investment | -0.1 (-0.2) | 0.0 (-0.2) | 0.1 (0.0) | 0.3 (0.3) |
| Subtotal: final domestic demand | 2.2 (2.1) | 1.9 (2.1) | 1.7 (1.7) | 1.7 (1.7) |
| Exports | 0.3 (0.2) | -0.9 (-1.2) | -0.1 (-0.2) | 0.7 (1.0) |
| Imports | -0.2 (-0.2) | 0.2 (0.3) | -0.1 (-0.1) | -0.8 (-1.0) |
| Inventories | -0.2 (-0.5) | 0.5 (0.0) | -0.4 (-0.3) | -0.1 (-0.1) |
| GDP | 2.0 (1.6) | 1.7 (1.2) | 1.1 (1.1) | 1.5 (1.6) |
| Memo items (percentage change): | ||||
| Range for potential output | 3.2 (2.8) | 1.9–2.7 (1.2–2.0) | 0.6–1.6 (0.4–1.4) | 0.7–1.7 (1.3–2.3) |
| CPI inflation | 2.4 (2.4) | 2.1 (2.0) | 2.0 (2.1) | 2.1 (2.1) |
* Numbers in parentheses are from the October Report.
† Numbers may not sum to their respective totals due to rounding.
Sources: Statistics Canada and Bank of Canada calculations, estimates and projections
| 2025 | 2026 | 2024 | 2025 | 2026 | 2027 | ||||
|---|---|---|---|---|---|---|---|---|---|
| Q2 | Q3 | Q4 | Q1 | Q4 | Q4 | Q4 | Q4 | ||
| CPI inflation (year-over-year percentage change) | 1.7 (1.7) |
2.0 (2.0) |
2.2 (2.0) |
2.0 |
1.9 (1.9) |
2.2 (2.0) |
1.9 (2.2) |
2.1 (2.1) |
|
| Core inflation (year-over-year percentage change)† | 3.1 (3.1) |
3.1 (3.2) |
2.9 (2.9) |
2.5 |
2.6 (2.6) |
2.9 (2.9) |
2.1 (2.3) |
2.1 (2.1) |
|
| Real GDP (year-over-year percentage change) | 1.6 (1.2) |
1.4 (0.7) |
0.7 (0.5) |
0.6 |
3.1 (2.3) |
0.7 (0.5) |
1.4 (1.6) |
1.7 (1.6) |
|
| Real GDP (quarter-over-quarter percentage change at annual rates)‡ | -1.8 (-1.6) |
2.6 (0.5) |
0.0 (1.0) |
1.8 |
|||||
* See details in the Tariff and other assumptions section. Numbers in parentheses are from the October Report.
† Core inflation is the average of CPI-trim and CPI-median.
‡ At the time of the projection, 2025Q4 and 2026Q1 are the only quarters for which some information about real GDP growth was available. For longer horizons, fourth-quarter-over-fourth-quarter percentage changes are presented. They show the Bank of Canada’s projected growth rates of CPI and real GDP within a given year. They can therefore differ from the growth rates of annual averages shown in Table 2.
Sources: Statistics Canada and Bank of Canada calculations, estimates and projections
Global outlook
The outlook for global growth is similar to what it was at the time of the October Report (Table 4).
- US economic growth in 2026 has been revised up, led by stronger consumption and investment in artificial intelligence.
- Growth in the euro area has been revised up slightly. Domestic demand has proved to be more resilient; it is projected to remain robust due to stronger-than-expected growth in the services sector and an increase in labour productivity.
- While the outlook for GDP growth in China is broadly unchanged, the composition of growth is different. Domestic demand is now expected to remain subdued, but exports have been revised up, supported by solid demand from other emerging-market economies.
| Share of real global GDP* (%) | Growth† (%) | ||||
|---|---|---|---|---|---|
| 2024 | 2025 | 2026 | 2027 | ||
| United States | 15 | 2.8 (2.8) |
2.2 (2.1) |
2.6 (2.2) |
2.1 (2.1) |
| Euro area | 12 | 0.8 (0.8) |
1.5 (1.2) |
1.2 (1.0) |
1.4 (1.5) |
| China | 19 | 5.0 (5.0) |
5.0 (4.9) |
4.5 (4.4) |
4.2 (4.1) |
| World | 100 | 3.3 (3.2) |
3.5 (3.2) |
3.2 (2.9) |
3.0 (3.0) |
* Shares of gross domestic product (GDP) are based on International Monetary Fund (IMF) estimates of the purchasing-power-parity valuation of country GDPs for 2024 from the IMF’s October 2025 World Economic Outlook.
† Numbers in parentheses are projections from the October Report.
Sources: National sources via Haver Analytics and Bank of Canada calculations, estimates and projections