Bank of Canada cuts growth forecasts, cites U.S. trade policy impact

Investing.com -- The Bank of Canada on Wednesday lowered its economic growth forecasts for 2025 and 2026, pointing to the negative effects of U.S. trade policies.

In its quarterly monetary policy report, the central bank reduced its 2025 growth projection to 1.2% from the 1.8% it had forecast in January. The 2026 growth outlook was cut to 1.1% from 1.8%, while 2027 growth is expected to recover slightly to 1.6%.

The bank attributed approximately half of the downward revision to "the negative impact of tariffs and uncertainty on potential output." The remaining portion reflects weaker demand conditions, primarily caused by U.S. trade policies.

Inflation forecasts were also adjusted, with 2025 annual inflation now expected to average 2.0%, down from the previous projection of 2.3%. Inflation is predicted to edge up to 2.1% in both 2026 and 2027.

For the current year, the Bank of Canada expects annualized GDP growth of 0.5% in the third quarter and 1.0% in the fourth quarter.

The central bank noted that potential output growth is projected to slow to 1.0% in 2026 from 1.6% in 2025, before rising to 1.3% in 2027.

The third-quarter output gap is estimated to be between -1.5% and -0.5%, largely unchanged from the second quarter. The nominal neutral interest rate is assumed to fall within a range of 2.25% to 3.25%.

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