Macklem signals a “humble” approach to forecasts as firms and consumers brace for ongoing uncertainty
Trade uncertainty continues to cast a long shadow over Canada’s economic outlook, prompting the Bank of Canada to emphasize caution as it prepares its next interest rate decision.
The Canadian Press reports that Governor Tiff Macklem says the central bank will need to be “humble” in its return to formal economic forecasting, with risks from global trade tensions and domestic policy reviews shaping the conversation around growth, investment, and inflation.
According to Macklem, while the immediate threat of US tariffs has eased since the spring, the possibility of renewed escalation between China and the United States remains “very significant from a global perspective.”
He also points to the upcoming review of the Canada-US-Mexico Agreement as a new source of uncertainty for Canadian exporters, who currently benefit from tariff-free access to the US market.
The Bank of Canada’s latest business outlook survey, as reported by Bloomberg, reveals that firms remain wary, with expectations for growth in domestic export sales still subdued due to ongoing trade tensions.
Exporters in the steel and aluminum sectors, in particular, continue to report “especially weak outlooks” and “significant layoffs” as a result of tariffs.
Despite a slight improvement in the business outlook indicator, most firms say their investment intentions are limited to replacing or repairing machinery, rather than expansion.
On the consumer side, the Bank of Canada’s survey shows a modest improvement in financial well-being among wealthier Canadians, such as homeowners and older individuals, while spending intentions among younger and less affluent groups have declined.
Most consumers expect the worst impacts of the trade war are yet to come, with two-thirds anticipating a recession in the next year.
Inflation expectations for vehicles facing US tariffs have also risen, and there is a growing preference for Canadian-made goods and domestic vacations over American alternatives.
Macklem notes that the artificial intelligence boom is providing a “countervailing force,” supporting investment and productivity, particularly in the US.
However, he cautions that AI also brings risks and that policy-makers must better understand its macroeconomic and labour market impacts.
The Canadian jobs market remains volatile, with a recent gain of 60,000 positions in September following losses over the summer.
Macklem describes the labour market as having “softened” over several months and notes that the Bank cited this weakness as a key factor in last month’s quarter-point rate cut.
As the Bank of Canada prepares to release its updated economic forecast and interest rate decision on October 29, Macklem stresses the importance of closely monitoring how trade uncertainty, tariffs, and shifting consumption patterns are affecting export volumes, investment, and inflation.
“Let’s get all the data, let’s look at the forecast, let’s have the deliberations and we’ll come to our best assessment and a decision on Oct. 29,” Macklem says.
