Bank of Canada releases economic forecasts: Sees 2025 GDP growth at 1.8% vs 2.1% prior

The Bank of Canada had flagged in its December statement that it was likely to revise down 2025 GDP forecasts.

Canadian forecasts compared to October:

• 2025 GDP growth forecast cut to 1.8% from 2.1%
• Q4 2024 GDP growth trimmed to 1.8% from 2.0%
• CPI inflation revised up for 2024 annual (2.4% vs 2.3%)
• Core inflation notably higher in Q4 2024 (2.6% vs 2.3%)
• 2025 CPI seen at 2.3% vs 2.2% prior
• Q4 CPI seen at 3.3% vs 2.0% prior
• The output gap is estimated to be about 0.3 pp
  narrower than it was before upward revisions to historical data and is at -1.25% to -0.25% (vs -1.75% to -0.75% in Oct)

Global growth outlook key revisions:

• US growth edged up to 2.6% (prev 2.4%)
• China growth higher at 4.9% (prev 4.3%)
• Euro area lower at 0.8% (prev 1.2%)
• Global growth steady at 3.1%

Critically, these forecasts don’t include the potential impacts of tariffs.

Domestically, there is only a 0.3 pp downgrade in growth but the composition is significantly changed:

• Consumption growth forecast nearly doubled to 1.3% (prev 0.7%)
• Business investment sharply lower at 0.1% (prev 0.4%)
• Exports dramatically reduced to 0.6% (prev 1.5%)
• Final domestic demand slightly higher at 2.4% (prev 2.2%)

That’s asking a lot from the consumer.

The report also shows 25% US tariffs + retaliatory measures would slash GDP growth by ~2.5 percentage points in year 1. It says the Canadian dollar would take significant hit on both direct trade impacts and risk premium, which could result in inflation.

This article was written by Adam Button at www.forexlive.com.