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

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.