Monetary Policy Report—October 2025
Economic growth in Canada is projected to strengthen from around 0.75% in the second half of 2025, with annual growth averaging 1.4% over 2026 and 2027. Inflation is expected to remain around 2% over the projection horizon.
The current outlook is presented relative to January, which was the last Report with a base-case projection (Chart 33). The Canadian and global outlooks are weaker due to the trade conflict.
Changes to the projection
Canadian outlook
Growth in gross domestic product (GDP) is approximately 0.7 percentage points lower in both 2025 and 2026 than in the January Report. After historical revisions are taken into account, the level of Canadian GDP is projected to be 1.5% lower by the end of 2026 (Table 3 and Table 4).
Roughly half of the downward revision relative to the January Report reflects the negative impact of tariffs and uncertainty on potential output. The remainder reflects weaker demand conditions, mainly caused by the negative effects of US trade policies.
The outlook for consumer price index (CPI) inflation is around 0.3 percentage points lower in 2025 and unchanged in 2026. This is primarily due to lower oil prices and the temporary decline in inflation from the removal of the consumer carbon tax. These effects outweigh the one-time price increase from Canada’s counter-tariffs and inflation from imports from the United States.
| 2024 | 2025 | 2026 | 2027 | |
|---|---|---|---|---|
| Consumption | 1.3 (1.1) | 1.5 (1.3) | 0.8 (0.9) | 0.9 |
| Housing | -0.1 (-0.1) | 0.1 (0.5) | 0.2 (0.2) | 0.1 |
| Government | 1.1 (0.7) | 0.7 (0.5) | 0.7 (0.4) | 0.4 |
| Business fixed investment | -0.2 (-0.1) | -0.2 (0.1) | 0.0 (0.2) | 0.3 |
| Subtotal: final domestic demand | 2.1 (1.6) | 2.1 (2.4) | 1.7 (1.7) | 1.7 |
| Exports | 0.2 (0.3) | -1.2 (0.6) | -0.2 (0.8) | 1.0 |
| Imports | -0.2 (-0.2) | 0.3 (-0.7) | -0.1 (-0.8) | -1.0 |
| Inventories | -0.5 (-0.4) | 0.0 (-0.5) | -0.3 (0.1) | -0.1 |
| GDP | 1.6 (1.3) | 1.2 (1.8) | 1.1 (1.8) | 1.6 |
| Memo items (percentage change): | ||||
| Range for potential output | 2.8 (2.1–2.8) | 1.2–2.0 (1.1–2.4) | 0.4–1.4 (0.9–2.2) | 1.3–2.3 |
| CPI inflation | 2.4 (2.4) | 2.0 (2.3) | 2.1 (2.1) | 2.1 |
- * Numbers in parentheses are from the January Report.
- † Numbers may not add to total due to rounding.
Sources: Statistics Canada and Bank of Canada calculations, estimates and projections
| 2025 | 2024 | 2025 | 2026 | 2027 | |||||
|---|---|---|---|---|---|---|---|---|---|
| Q1 | Q2 | Q3 | Q4 | Q4 | Q4 | Q4 | Q4 | ||
| CPI inflation (year-over-year percentage change) | 2.3 (2.1) |
1.7 |
2.0 |
2.0 |
1.9 (1.9) |
2.0 (2.4) |
2.2 (2.1) |
2.1 |
|
| Core inflation (year-over-year percentage change)† | 2.8 (2.5) |
3.1 |
3.2 |
2.9 |
2.6 (2.6) |
2.9 (2.1) |
2.3 (2.1) |
2.1 |
|
| Real GDP (year-over-year percentage change) | 2.3 (1.7) |
1.2 |
0.7 |
0.5 |
2.3 (1.8) |
0.5 (1.9) |
1.6 (1.7) |
1.6 |
|
| Real GDP (quarter-over-quarter percentage change at annual rates)‡ | 2.0 (2.0) |
-1.6 |
0.5 |
1.0 |
|||||
- * See details on the key inputs to the projection. Numbers in parentheses are from the January Report.
- † Core inflation is the average of CPI-trim and CPI-median.
- ‡ At the time of the projection, 2025Q3 and 2025Q4 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 3.
Sources: Statistics Canada and Bank of Canada calculations, estimates and projections
Global outlook
The outlook for global growth is weaker than it was at the time of the January Report (Table 5).
- US growth is softer in 2025 and 2026 because the impacts of tariffs and policy uncertainty, higher inflation and lower immigration have weakened household spending. This softer growth is partially offset by stronger labour productivity and business investment resulting from spending related to artificial intelligence.
- Euro area growth has been revised up on average relative to the January Report. Stronger-than-expected domestic demand in 2025 and fiscal stimulus anticipated in 2026 are the reasons for this upward revision.
- Despite the negative impact from higher US tariffs and continued weakness in the property sector, the outlook for GDP in China has been revised up. The upward revision reflects, in part, robust fiscal support.
| Share of real global GDP* (%) | Growth† (%) | ||||
|---|---|---|---|---|---|
| 2024 | 2025 | 2026 | 2027 | ||
| United States | 15 | 2.8 (2.8) |
2.1 (2.6) |
2.2 (2.3) |
2.1 |
| Euro area | 12 | 0.8 (0.7) |
1.2 (0.8) |
1.0 (1.3) |
1.5 |
| China | 19 | 5.0 (5.0) |
4.9 (4.9) |
4.4 (4.1) |
4.1 |
| World | 100 | 3.2 (3.1) |
3.2 (3.1) |
2.9 (3.1) |
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 2023 from the IMF’s October 2024 World Economic Outlook.
† Numbers in parentheses are projections from the January Report.
Sources: National sources via Haver Analytics and Bank of Canada calculations, estimates and projections