OTTAWA—The Bank of Canada nudged its economic growth projections higher for 2026 and 2027 on Wednesday, banking on steady U.S. tariffs and oil prices easing to $75 a barrel by mid-2027. Growth now stands at 1.2% for 2026, up from January’s 1.1%, and 1.6% for 2027, a tick above the prior 1.5%. Reuters flagged this subtle shift in the central bank’s quarterly monetary policy outlook, released alongside a decision to hold the benchmark rate at 2.25% for a fourth straight meeting.
Inflation tells a stickier story. It averages 2.3% in 2026—lifted from 2.0%—before dipping to 2.1% in 2027, still hovering above the 2% target. April’s headline rate could spike to 3% from March’s 2.4%, driven by Middle East turmoil jacking up energy costs. Yet the bank views this as transient. Higher oil boosts national income since Canada exports plenty, offsetting consumer squeezes from pricier gasoline. The economy grows slightly above potential, gradually mopping up excess supply.
Governor Tiff Macklem stressed conditionality in his remarks. “If the base case holds, future rate moves should be small,” he said, per the full text of his statement. But persistent high energy prices? Consecutive hikes loom possible. No dovish tilt here. A conditional pause.
U.S. tariffs loom large, of course. The bank assumes they stay put—no escalation, no retreat. Exports and business investment resume along a subdued path: 1.2% GDP expansion in 2026, then 1.6% in 2027, 1.7% in 2028. First-quarter 2026 annualized growth slips to 1.5% from January’s 1.8%; Q2 likely matches that. Global growth? Steady at 3% through 2028. Bank of Canada Monetary Policy Report lays it out plainly: Canada adjusts to the new trade reality, growth moderate, inflation easing back.
Rewind to January. Forecasts matched today’s closely, but October 2025 saw sharper cuts—2026 growth to 1.1% from 1.8%, blamed on trade shocks. January held at 1.1% and 1.5%. Now, slight upgrades. Why? Tariff uncertainty eases a bit; oil assumed to normalize. Still, risks tilt down for near-term growth. CUSMA review? A wild card.
Broader context bites. Population growth stalls—zero last year, flat this one—curbing potential output. Business investment lags; U.S. clients delay orders. Yet domestic demand holds: consumer and government spending firm. Housing weak. Inventories unwind faster than expected, dragging Q4 2025 into contraction.
Markets shrugged. The loonie edged up post-announcement. Bond yields stable. Investors eye Macklem’s presser: oil shock short-lived, but watch the war in Iran. Escalation could rewrite everything.
And here’s the rub. Canada’s oil exporter status softens the blow. Higher prices swell revenues in energy provinces, countering household pain. Core inflation trends to 2% slower than hoped, but contained. TD Economics notes energy’s 10% GDP slice—double the U.S.—cushions growth by 0.1 point.
Private forecasters align, mostly. RBC sees Q1 tracking 1.3% annualized, between their call and BoC’s old 1.8%. BNN Bloomberg pegs 1.5% as solid amid trade woes. IMF’s rosier: 1.5% in 2026, but BoC sticks conservative.
But. Structural scars linger. Tariffs slash productivity, jobs, living standards. By end-2026, GDP 1.5% below pre-tariff paths. Potential output growth dips to 1.0% in 2026 from 1.6%. Exports down sharply; recovery gradual.
Fiscal side helps. Ottawa’s deficit undershot for 2025/26; growth forecasts trimmed but supportive spending flows. IMF praises Canada’s G7-best fiscal spot. Immigration curbs? Population dips slightly in 2026, rebounds slow.
Macklem again: “The outlook for economic growth in Canada is little changed from the January Monetary Policy Report.” After Q4 contraction, early 2026 rebounds modestly. Excess supply persists; policy rate on hold absorbs it slowly.
X chatter echoes caution. One analyst: “BoC looking through war’s inflation hit, but won’t let energy embed. If oil sticks high, hikes on deck.” Another: growth 1.1-1.2%, inflation 2.3-2.4%. Sentiment matches the report.
Longer view? Exports contribute negatively in 2026 (-0.1 point), flip positive in 2027 (0.6). Imports accelerate with demand. Net trade near zero. Business capex modest at 0.6%—uncertainty reigns.
Central bankers walk a knife edge. Rate unchanged. Growth ticked up. Inflation bump eyed warily. Tariffs assumed static. Oil to fall. If any leg breaks—hikes. Or cuts, if growth craters. Industry watchers nod: prudent. Realistic. No fireworks.
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