Monetary Policy Report
January 2026
Overview
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%.
Current conditions
The Canadian economy continues to evolve as expected. Average quarterly growth was subdued in 2025, weighed down by US tariffs and slowing population growth. CPI inflation remains near the 2% target.
Tariff and other assumptions
US tariffs remain elevated. The future of trade in North America continues to be highly uncertain.
Outlook
US trade restrictions have disrupted the Canadian economy, leading to structural adjustments that will take time to unfold. Economic growth is expected to remain modest. Excess supply roughly offsets upward cost pressures over the projection horizon, keeping inflation close to the 2% target.
Global economy
Global growth is expected to remain solid, supported by the boom in investment in artificial intelligence and by fiscal stimulus in several major economies.
Projections
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%.
Risks
With geopolitical uncertainty elevated and Canada’s trade agreement with the United States and Mexico under review, risks around the outlook are unusually high.
In focus
How Canadian businesses are adapting to US tariffs
Canadian businesses continue their efforts to expand exports to countries other than the United States. Trade tensions are also leading Canadian businesses to rely less on US imports.
The review of the Canada–United States–Mexico Agreement
The future of Canada’s trade agreement with the United States and Mexico is unclear. A review of the agreement could lead to many possible outcomes, and these can have a wide range of impacts on the Canadian economy.
In brief: Monetary Policy Report
ISSN 1490-1234 (Online)