Highlights of the statement:
- Says Canada’s economy is showing signs of improvement
- Growth is picking up and inflation is projected to ease gradually from its recent spike.
- Says Governing Council will continue to assess the strength of the Canadian
economy and the outlook for inflation, and is prepared to adjust
monetary policy as needed - Previously said Governing Council is continuing to look through the war’s near-term
impact on headline inflation, but will not let higher energy prices
become persistent inflation - The US economy is growing at about 2½%, cites ‘booming’ AI investment
- China’s economy is expanding solidly thanks to robust exports
- Eurozone growth expected to strengthen in H2
- Labour market conditions have remained soft, reflecting ongoing economic slack
- There are clear signs that economic growth has resumed in the second quarter, with growth estimated at 2½%
- sources of economic growth appear to be broadening
- Housing activity has been weak but looks to be stabilizing.
- Business investment is projected to pick up modestly
- More businesses report they are finding ways to navigate through the uncertainty of USMCA
The line “Uncertainty is still high” to me suggests the bias is now towards holding rates rather than hiking. The market is pricing in 16 bps in hikes through year end, so still a better than 50/50 chance of a hike.
In the MPR, the growth profile has been pushed out. Canada’s 2026 forecast was cut sharply after the economy stalled in the first quarter, but the Bank raised growth for 2027 and 2028. Near-term headline inflation is higher, largely because of gasoline, refinery margins and the weaker Canadian dollar; underlying inflation remains close to 2%.
Headline GDP forecasts
| Real GDP growth | 2026: April → July | 2027: April → July | 2028: April → July |
|---|---|---|---|
| Canada | 1.2% → 0.7% (-0.5 pp) | 1.6% → 1.8% (+0.2 pp) | 1.7% → 1.8% (+0.1 pp) |
| United States | 2.4% → 2.4% | 2.3% → 2.4% (+0.1 pp) | 2.3% → 2.4% (+0.1 pp) |
| World | 3.0% → 2.8% (-0.2 pp) | 3.0% → 3.2% (+0.2 pp) | 3.2% → 3.2% |
Global growth was reduced for 2026 because the Middle East war weighed more heavily than expected on the Persian Gulf economies; some of that activity is now expected to rebound in 2027.
Canada: detailed forecast changes
The figures below are percentage-point contributions to annual GDP growth. A more-negative import number means imports subtract more from GDP.
| Contribution | 2026: April → July | 2027: April → July | 2028: April → July |
|---|---|---|---|
| Consumption | 0.8 → 0.9 (+0.1) | 0.5 → 0.8 (+0.3) | 0.6 → 0.6 |
| Housing | -0.1 → -0.2 (-0.1) | 0.1 → 0.1 | 0.2 → 0.2 |
| Government | 0.9 → 0.5 (-0.4) | 0.7 → 0.8 (+0.1) | 0.4 → 0.5 (+0.1) |
| Business fixed investment | 0.1 → 0.2 (+0.1) | 0.3 → 0.2 (-0.1) | 0.3 → 0.2 (-0.1) |
| Final domestic demand | 1.7 → 1.4 (-0.3) | 1.6 → 1.9 (+0.3) | 1.5 → 1.5 |
| Exports | -0.2 → 0.5 (+0.7) | 0.8 → 0.6 (-0.2) | 0.9 → 0.8 (-0.1) |
| Imports | -0.3 → -1.0 (-0.7) | -0.7 → -0.6 (+0.1) | -0.7 → -0.7 |
| Inventories | 0.0 → -0.2 (-0.2) | -0.1 → -0.1 | 0.0 → 0.2 (+0.2) |
| GDP growth | 1.2 → 0.7 (-0.5) | 1.6 → 1.8 (+0.2) | 1.7 → 1.8 (+0.1) |
The biggest 2026 changes are the 0.4-point reduction in government’s contribution, a weaker housing forecast and a larger import/inventory drag. These more than offset the major upward revision to exports. The 2027 upgrade is predominantly stronger consumption and government spending.
The first-quarter miss was severe
| Annualized quarterly GDP growth | April forecast | July estimate/forecast | Revision |
|---|---|---|---|
| 2026 Q1 | 1.5% | -0.1% | -1.6 pp |
| 2026 Q2 | 1.5% | 2.5% | +1.0 pp |
| 2026 Q3 | — | 1.5% | — |
The Bank attributes the Q1 stall primarily to:
- an unexpected decline in government spending;
- automobile-factory shutdowns for retooling;
- a sudden drop in oil and gas investment;
- continued weakness in housing.
Consumption held up better, and Q2 is expected to rebound as those temporary factors reverse, with additional support from exports, residential investment and oil-sector activity.
On a fourth-quarter-over-fourth-quarter basis, the revisions are:
| GDP growth | April | July | Change |
|---|---|---|---|
| 2026 | 1.8% | 1.4% | -0.4 pp |
| 2027 | 1.4% | 1.9% | +0.5 pp |
| 2028 | 1.9% | 1.8% | -0.1 pp |
This reinforces the idea that the weakness is concentrated in early 2026 rather than representing a wholesale deterioration in the medium-term outlook.
Inflation: higher now, essentially unchanged later
| Average CPI inflation | April | July | Change |
|---|---|---|---|
| 2026 | 2.3% | 2.5% | +0.2 pp |
| 2027 | 2.1% | 2.0% | -0.1 pp |
| 2028 | 2.0% | 2.1% | +0.1 pp |
More notable are the near-term quarterly changes:
- 2026 Q2 CPI: 2.6% → 3.0%
- 2026 Q4 CPI: 2.2% → 2.4%
- 2027 Q4 CPI: unchanged at 2.0%
- Core inflation remains around 2% through the near-term forecast.
Headline inflation reached 3.2% in May, but inflation excluding gasoline and the Bank’s core measures remained close to 2%. The Bank therefore describes the inflation outlook as “little changed,” despite the higher near-term headline numbers.
Other important changes
| Assumption | April | July |
|---|---|---|
| Canadian dollar | 73¢ US | 71¢ US |
| Brent oil, later projection | Around US$75 | Around US$70 by end-2027 |
| US average tariff on Canada | 5.1% | 5.0% |
| Central potential-output growth, 2026 | 1.2% |
Highlights of Macklem’s opening statement highlighted “three key messages”:
- After stalling over the past year, economic growth looks to have resumed in Canada
- Inflation in Canada is poised to ease gradually
- Uncertainty remains elevated
Other views:
- Recent indicators point to continued solid consumer spending
- Growth outlook is similar to our April forecast but latest data increases our confidence
- Excluding gasoline, inflation was 2.2%
- we’re not seeing broad spillovers of higher energy prices
Here is a key line in light of the resumption of the war:
We’ve been looking through the direct effects of higher oil prices on
inflation, but the longer they remain elevated, the bigger the risk they
spill over to other goods and services
USD/CAD was last up 9 pips to 1.4065.
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