Bank of Canada Presents Two Economic Scenarios Amid Trade War Uncertainty

The Bank of Canada has presented two possible scenarios instead of precise economic forecasts for the first time since COVID, one of which predicts a deep recession and a possible increase in inflation in Canada.

The bank’s first scenario assumes that if tariffs are withdrawn through negotiations, the economy will only stagnate in the second quarter, after which it will gradually grow back. But the second scenario is that if the trade war lasts longer, the Canadian economy will go into recession for a year and inflation will rise to 3.5 per cent by mid-2026. Governor Tiff McCallum said that the bank’s monetary policy cannot cope with the uncertainty of the trade war.

McCallum also stated that a lot has happened since the Bank’s decision in March five weeks ago, and the future remains unclear. He noted that it is still unknown which tariffs will be imposed, whether they will be reduced or increased, and how long the situation will persist. He described the current environment as one of complete uncertainty.