Canada’s central bank may be moving a little faster than the market anticipates. The Bank of Canada (BoC) released its quarterly market participant survey (MPS) this morning. The survey asks prominent financial market participants what they’re expecting in the coming months in terms of economic growth, inflation, and policy. Most respondents see Canada’s real GDP showing lackluster growth, but it can’t be all that bad—they don’t see rates falling nearly as much as many anticipate. Over the next two years, Canada’s most prominent financial professionals see interest rates staying higher for longer. They won’t even return to 2019-levels by the end of 2026, according to the majority of forecasts.
Canada’s Economy To Lag Global GDP, Fail To Meet GDP Potential
The Canadian economy is expected to lag global growth in the foreseeable future. Most MSP participants (53.9%) see real GDP advancing 1-2% in 2024, way behind the global forecast of 3% the BoC shared in their last report. Most (66%) anticipate annual growth of 2% or lower in 2025, though how much lower wasn’t as firm as this year’s data.
It’s easy to see why they expect such slow growth—a lack of productivity. The vast majority (81.5%) expect GDP output will remain negative. That means they’re expecting output to be significantly below its potential. Think of it like this—experts aren’t mad about the lack of output, they’re just disappointed we’re not living up to our full potential.
Bank of Canada Interest Rates To Stay Higher For Longer
MPS also don’t see the BoC slashing rates nearly as aggressively as many are hoping. The median forecast shows they expect rates to fall another point to 2.75% by the end of 2025, and hold that level through 2026. At 37.5% higher than pre-pandemic, that’s not necessarily a bad thing. Though in this context it’s not clear that it’s definitely a good thing either.
Policymakers frame higher rates as a negative, presenting the level that followed the Great Recession as normal. However, higher rates are typically a sign of demand remaining robust enough to boost inflation for goods. That’s a sign of an economy that’s doing just fine, as well as one that can actually afford to pay depositors interest that’s higher than the rate of inflation. A surprisingly optimistic forecast, even though it may not present that way.
