In our new baseline scenario based on information as of June 26, 2025, bilateral U.S. \u2013 Canada trade tariffs will peak in the second half of the year. They will then gradually decline by the second half of 2026 as trade agreements are expected to be reached. U.S. tariffs on other countries will follow a similar pattern, reducing global demand more in the short-term. This will affect Canada’s economy in 2025. Following a likely modest recession this year, the gross domestic product should begin to recover in early 2026. Our weaker growth scenario is found in the forecast table below.<\/p>\n
Three factors are already contributing to this slowdown and will continue to do so in the near term: <\/p>\n
The trade environment along with the possible impacts of geopolitical events will push inflation back up, peaking just above the 3% mark by mid-2026. The unemployment rate is also forecast to increase slightly by this fall. Our market intelligence confirms that uncertainty is widespread. <\/p>\n
For firms directly and indirectly affected by tariffs, lower demand and revenue from abroad will continue to reduce labour demand leading to weaker labour markets, while the heightened uncertainty slows down investment. Additionally, supply chain disruptions from trade policy uncertainty and higher tariffs will be costly and will drive prices up. For households, the prospect of job losses and rising prices will continue to curb consumption. Despite more favourable borrowing costs and conditions, home buying won\u2019t be spared from this uncertainty.<\/p>\n
These economic pressures are unfolding alongside an inflation outlook that remains higher than in the Housing Market Outlook\u2019s medium scenario<\/a>, even with a likely mild recession expected. As a result, our view on the policy rate has not changed. It should decrease slightly in 2025 and rise starting in 2027 to the midpoint of the neutral range. Meanwhile, bond yields and mortgage rates were lower than we expected in the first half of 2025. We expect them to stay below our Outlook\u2019s forecast<\/a> in the second half of the year as well. The 5-year fixed mortgage rates will gradually increase to a long-term rate of 5.5%. Variable-rate mortgages, tied to the policy rate, will remain more attractive to homebuyers. <\/p>\n We have left our demographic outlook unchanged. Lower immigration targets will be met gradually and will slow economic growth over the forecast horizon. <\/p>\n A softer housing market in 2025 will start to recover next year<\/p>\n Housing activity has weakened since January. Many home buyers and developers are taking a \u201cwait\u2011and\u2011see\u201d approach amid weaker economic growth and lingering trade tensions. Resale markets have softened, especially in Ontario and British Columbia, while Alberta shows signs of cooling. Quebec\u2019s housing activity has slowed less than in other parts of Canada, supported by more market momentum and more stable buyer sentiment. Overall, our current housing forecast in 2025 is increasingly aligned with the Housing Market Outlook\u2019s low scenario<\/a> in the near term which highlights growing downside risks to the outlook.<\/p>\n