Financial leaders expect moderate economic expansion
Business and financial leaders across Canada continue to expect economic growth through the end of the year, although trade tensions remain one of the biggest threats to the country’s economic outlook.
The Bank of Canada’s Market Participants Survey for the second quarter gathered views from 26 financial market participants between June 11 and June 18. Respondents included banks, investment managers, insurers, researchers and other financial institutions.
Trade tensions identified as the biggest downside risk
When asked to identify the main risks that could weaken Canadian economic growth, 96% of participants listed rising trade tensions among their top concerns.
Other major downside risks included tighter global financial conditions, cited by 65% of respondents, and increasing geopolitical risks, identified by 42%.
Participants also highlighted several potential factors that could support growth. Easing trade tensions was identified as the largest upside risk, with 92% of respondents selecting it. A larger-than-expected fiscal stimulus was cited by 58%, while 31% pointed to lower geopolitical risks, stronger consumer spending and improved housing market conditions.
GDP growth expectations remain modest
The median forecast among survey participants projected Canada’s real gross domestic product (GDP) would grow 1.3% year over year in 2026, down 0.3 percentage points from the previous survey conducted in May.
Growth expectations increase to 1.9% by the end of 2027, suggesting financial leaders anticipate a gradual improvement in economic activity.
Trade uncertainty continues to weigh on Canada’s outlook
The survey was conducted before several major trade developments increased uncertainty for the Canadian economy.
Since the survey period, the United States announced that the Canada-United States-Mexico Agreement would not be automatically renewed for another 16 years, introducing annual reviews for up to a decade.
The survey also took place before US President Donald Trump announced a 50% tariff on approximately $20 billion worth of Canadian goods, scheduled to take effect on August 19.
Bank of Canada sees signs of improvement
The Bank of Canada’s latest Monetary Policy Report, released on July 15, indicated that the economy is showing signs of recovery following a period of weakness.
The central bank projected GDP growth of 0.7% in 2026, followed by growth of 1.8% in both 2027 and 2028.
Bank officials said that while uncertainty surrounding the Canada-US-Mexico trade agreement remains elevated, more businesses are adapting to the changing environment. Government spending is also expected to contribute to stronger economic activity.
Inflation expected to ease gradually
Market participants expect inflation to remain elevated in the near term, with median forecasts pointing to consumer price growth of 2.6% by the end of 2026.
Inflation is expected to moderate to 2.1% by the end of 2027. The latest consumer price index report showed inflation at 2.8% in June.
However, core inflation measures remained relatively stable, with the Bank of Canada’s preferred trim and median measures staying just below 2% annually.
Interest rates expected to remain stable
Survey participants expect the Bank of Canada to keep its policy interest rate unchanged at 2.25% through the end of 2026.
The median forecast suggests the central bank’s rate could rise to 2.75% by the end of 2027.
Although the Bank of Canada removed references to possible consecutive rate increases from its latest monetary policy report, Governor Tiff Macklem said further hikes remain possible if higher oil prices begin affecting broader inflation.
Oil prices remain a key inflation risk
Oil markets remain an important factor for Canada’s economic outlook. Brent crude briefly reached $100 per barrel last Thursday after Iran-backed Houthi forces in Yemen attacked two Saudi Arabian oil tankers in the Red Sea.
Prices have since eased, with Brent trading around $90 per barrel on Monday, but the central bank continues to monitor whether energy costs could spread into other goods and services.
“Uncertainty is high, and we’re prepared to adjust monetary policy as needed,” Macklem said following the Bank of Canada’s rate decision on July 15.
