The Bank of Canada faces a complex dilemma: navigating potential inflationary pressures while the global economy, as predicted by the OECD, is poised for a significant slowdown. The Organization for Economic Co-operation and Development (OECD) has lowered its global economic growth projections, now anticipating a decline from 3.3% in 2024 to 2.9% in both 2025 and 2026, underscoring the challenging environment.
The OECD’s latest outlook report highlights that “weakened economic prospects will be felt around the world,” and specifically includes Canada among the nations expected to be significant contributors to the global economic decline. This broad economic deceleration adds pressure on the Bank of Canada as it considers its monetary policy.
Crucially, the OECD warns that “protectionism” will put pressure on inflation, leading to higher costs for goods and services. The report suggests that central banks like the Bank of Canada “should remain vigilant” in this environment. While no interest rate hikes are expected from the Bank of Canada on Wednesday, the report cautions that if inflation does spike, there is “potential to return to a period of higher borrowing costs again.”
Beyond immediate monetary policy, the OECD also stresses the importance of increasing investments to stimulate business development and improve public finances. This aligns with efforts by Prime Minister Mark Carney to bolster the Canadian economy and diversify trading partners, highlighting the multifaceted approach required to address both inflation and the broader economic slowdown.
