BOC: MPR: Two Scenarios For Trade, Both With Lower Growth And Higher Inflation

The BoC's updated Monetary Policy Report (link) includes two scenarios for the Canadian economic outlook in the context of a US/global trade conflict - one more benign and the other more severe. In any case, as expected, the scenarios point to weaker growth and higher inflation than foreseen in the January MPR, which had largely been expected. The two scenarios are described here, with the quarterly and annual projections in the images below:

• Scenario 1: "Trade policy uncertainty weighs on activity. GDP stalls briefly in the second quarter of 2025 and then expands at a moderate pace, resulting in persistent excess supply. Inflation drops below target for the rest of 2025 and in early 2026 due to both excess supply in the economy and the removal of the consumer carbon tax. This occurs despite the upward pressure on prices from the few remaining tariffs. Inflation then averages around 2% for the rest of the scenario horizon." The assumptions here include "that most tariffs imposed since the trade conflict began are negotiated away, but the process is unpredictable. Uncertainty about US trade policy continues, and businesses and households remain cautious."
• Scenario 2: "Canada’s GDP contracts over the next year due to tariffs and the adverse effects of uncertainty. Growth gradually recovers to around 1.8% in 2027. Inflation averages close to 2% through the first quarter of 2026. The removal of the consumer carbon tax and ongoing economic slack roughly offset the impact of tariffs. Inflation then rises above 3% in the second quarter of 2026 due to the impact of tariffs. It then gradually declines to the 2% target in 2027." This scenario assumes "the uncertainty and limited tariffs in Scenario 1 persist and other US tariffs are added. A long-lasting global trade war unfolds"
• Note that these scenarios were compiled on April 11, so ahead of this week's inflation data.