The Bank of Canada has observed a reduction in the threat of a severe global trade conflict since April, providing some clarity on the anticipated structure of U.S. tariffs. According to Reuters, the central bank has not released regular economic forecasts for the second consecutive quarter, citing ongoing uncertainties surrounding U.S. trade policy. Instead, it has outlined three potential scenarios for future economic conditions.
Read also: Trade as a Truce: Why Economic Ties Can End Global Conflicts
In the current tariff scenario, based on conditions as of July 27, GDP is projected to grow by approximately 1% in the latter half of 2025, with an increase to 1.8% by 2027. Inflation is expected to remain steady at around 2%. A de-escalation scenario, where the U.S. and other nations reduce tariffs, could see growth reaching about 2% in the second half of 2025, averaging 1.7% through the end of 2027, with inflation dipping in early 2026 before stabilizing near 2% by 2027.
Conversely, an escalation scenario involving increased tariffs could initially suppress growth in 2025, but recovery is anticipated in early 2026, with an average growth rate of 2%. Inflation may rise to just over 2.5% in the third quarter of 2026 before settling back to around 2% in 2027. These projections align with data from the IndexBox platform, which provides insights into potential economic outcomes under varying trade policies.
