Canada’s business community is bracing itself for a downturn in the near future. The Bank of Canada (BoC) released the results of its Market Participant Survey (MPS) for Q1 2025. The survey, a poll of financial market experts, shows expectations for GDP growth have fallen, while the probability of a recession has climbed sharply. The central bank is expected to slash rates further this year, but the era of low rates is over. Even after cuts, the outlook still sees the overnight rate above anything seen throughout the 2010s.
Canadian GDP Growth Forecasts Slashed Significantly For 2025
Canada’s business community is losing confidence in the country’s outlook. The median estimate for annual GDP growth came in at just 1.0% for 2025, shedding 0.8 points from the Q4 estimates. Sentiment hasn’t impacted next year’s forecast as severely, with annual growth seen at 1.7 points, down just 0.2 points from last quarter.
Canadian Recession Probability Surges For 2025
The median probability of a recession in Canada (percent) by range of probability (months). MPS report Q1 2025 vs Q4 2024.
Source: Bank of Canada MPS.
Expectations of a recession in the short-term saw a sharp uptick with the experts. The median probability of one occurring within the next 6 months rose to 38% in Q1 2025, an uptick of 12 points from the previous quarter. For the 6-to-12 month window, the probability rose 10 points to 40%.
Medium-term expectations didn’t shift quite as much. The median probability of a recession within 12 to 18 months remains unchanged at 30%, while the odds fell 5 points to 20% for expectations within 18 to 24 months. In other words, the view shifted to more volatility in the near-term than later.
Canadian Inflation Expected To Remain Stable, Era of Low Rates Over
Despite recession fears, inflation expectations edged higher but stayed within the BoC’s target range. The median forecast for 2025 (2.4%; +0.4 points q/q), and 2026 (2.0%; unchanged) are both within the central bank’s tolerance target of 1 to 3 points.
Despite seeing price growth 20% higher this year, expectations of rate cuts strengthened. The median forecast expects the Bank of Canada (BoC) policy rate at 2.25% by the end of 2025, shedding an extra 0.25 points from last quarter.
Interestingly, none of the forecasts see the overnight rate falling below 2.0 points through 2027. That would be lower than the 5.0 points seen just last year, but higher than anything experienced in the 2010s. In fact, the country hasn’t seen the overnight rate at 2.0% or higher from 2008 to 2022. An issue that can have a profound impact on the outlook for real estate price growth.
The era of low rates may indeed be over, and we’re entering the era of “higher for longer.” At least, that’s what experts see in the short-term.
Yesterday’s election appears to have a minimal impact on the outlook, according to the experts. Trade tensions were the biggest factor, with 96% of experts citing easing or worsening relations as key to the outlook.
Smaller but still considerable upside factors include larger than expected stimulus (67%), and looser monetary policy (37%). Rounding out the downside are weaker consumer spending (41%), geopolitical risks (33%), and global financial risks (33%). In other words, the external environment is a headwind that may concern Canada when it comes to the downside.
On the upside now that the election is over, watch Canada solve the trade war by next week by actually negotiating instead of posturing to amplify the divide.
I got a shiny new twoonie that says you are 100% wrong!
Look the medium term issue is the wezt willbe replaced by asia as the global economic power. Trump is trying to slow this with the fact hus consumer base is bigger still.
Canada needs to stop fighting with china, india, russia, anddevelop a trade relatipnship. Wasting time on europe shows carney is not going to help us.
Canada can either be a partner with the usa or develop strong ties with asia. Making deals in europe is both dumb and counyerproductive.
In terms of canadas economy the sad part is carney probably cost us a recession so he could get elected.
Canada can negotiate a good deal, bit we need to sell our ablity to provide energy security. Hard to do that with a card carryong net zero pm though. So we will regret this mess.
This. Trump is short-term issue, so re-writing the progress made over the past 30 years because Boomers are under educated makes zero sense.
Not only will Trump wipe the floor with Carney, Mark will ensure the commodities that could take us out of recession are not exploited.
Canada is cooked, thanks boomers!
Canada will just change the recession indicators, so it’s fine. We ever get the official numbers or were they waiting until the election was over before Statistics Canada provides the “material revisions” they told us to expect?
Advanced economies have a global debt build up. When you have firms like PIMCO unable to navigate the bond issues, the valve is going to blow regardless of what policies are in place.
The only outcome that changes is debt is competitive. The gov elected anticipating a much larger deficit means Canada is betting on the gov stimulating the economy by picking big businesses over SMBs and consumption driving growth. I don’t know if it was the right bet but it’s concentrating the move in a handful of bets that can easily be blown apart.
We have been saying it for years. Major Canadian economic and housing market blow outs coming in 2025. The buyers are in the USA.
That was sarcasm I hope Paul !
It’s clear neither the Conservatives or the Libs are capable of addressing the housing problems. It’s also clear that its vested interests that have accrued on Housing & Immigration have taken over.
The NDP have nothing apart from dinosaur socialist policies also guaranteed to wreck the economy.
What is needed in housing is something like another 30 % price reduction from COVID peaks to bring prices back into the 5-6 times average family income range. This will give our kids a chance of a future, and begin building back the middle class again.
We need a controlled deflation in housing prices.. How to do this ? a lot of very obvious and very well known things like… getting investors out of the mkt, anyone owning more than 2 homes subject to business taxes, and all the regulatory stuff that goes with running an RE investment business, disclosure of beneficial ownership, a REAL ban on offshore investments… and I’d disclose the names of folks with properties in Vancouver and the GTA to their home countries, just to ensure they are fully reported there.. MUCH tougher controls on money laundering via RE, direct income verification via CRA, credit check on mortgage renewals, audit the crap out of folks with no income, on every gov’t program going yet living in multi million $ mansions. etc etc .. it wouldn’t take long for folks who know all the BS that’s gone on to build out the list.
I am a boomer and I for one, and many others I know wouldn’t mind taking a paper loss so our kids could buy a house and have a future.. as for the others who took out HELOCS to buy multiple properties and all the toys on the driveways, so they need high house prices… learn some financial basics.
That was sarcasm I hope Paul !
It’s clear neither the Conservatives or the Libs are capable of addressing the housing problems. It’s also clear that its vested interests that have accrued on Housing & Immigration have taken over.
The NDP have nothing apart from dinosaur socialist policies also guaranteed to wreck the economy.
What is needed in housing is something like another 30 % price reduction from COVID peaks to bring prices back into the 5-6 times average family income range. This will give our kids a chance of a future, and begin building back the middle class again.
We need a controlled deflation in housing prices.. How to do this ? a lot of very obvious and very well known things like… getting investors out of the mkt, anyone owning more than 2 homes subject to business taxes, and all the regulatory stuff that goes with running an RE investment business, disclosure of beneficial ownership, a REAL ban on offshore investments… and I’d disclose the names of folks with properties in Vancouver and the GTA to their home countries, just to ensure they are fully reported there. (wink wink). MUCH tougher controls on money laundering via RE, direct income verification via CRA, credit check on mortgage renewals, audit the crap out of folks with no income, on every gov’t program going yet living in multi million $ mansions. etc etc .. it wouldn’t take long for folks who know all the BS that’s gone on to build out the list.
I am a boomer and I for one, and many others I know wouldn’t mind taking a paper loss so our kids could buy a house and have a future.. as for the others who took out HELOCS to buy multiple properties and all the toys on the driveways, so they need high house prices, please learn some financial basics.
Nowhere in the article was there an actual quote from Bank of Canada, just unnamed “experts”.
And there are contradictions as well…..
“Despite seeing price growth 20% higher this year, expectations of rate cuts strengthened. ”
versus
“The era of low rates may indeed be over, and we’re entering the era of “higher for longer.” At least, that’s what experts see in the short-term. “
The Market Participant Survey isn’t for the average person, just like most of their articles. Most of their content is for a specialized audience in real estate & credit risk, who already understand these things but I’ll explain.
The Market Participant Survey doesn’t use names so the people who respond aren’t pressured into expectation bias, since this is used by the Bank of Canada to make policy decisions.
If it was, most institutions would be expected to downplay growth & advocate for lower rates to grow their credit book (& generate liquidity profits on securitized bonds).
It’s common in economics to not use their name for this purpose, which is why magazines like the Economist don’t list authors. The MPS involves every major financial institution that does business in Canada though. Here’s the list of participants straight from the horse’s mouth.
https://www.bankofcanada.ca/publications/market-participants-survey/
Canada MUST increase immigration to avoid a recession. This is Canada’s time to lead and be number 1. Canada can easily absorb upwards of 5 million immigrants a year.
Housing is the most important part of the economy and people have worked hard to buy homes and should be rewarded by appreciation of their assets. Interest rates should be lowered to help support home prices. The economy will do well with lower rates.
Immigration from the third world needs to stop yesterday
Nope. We must decrease immigration numbers. I read your comment and now I feel dumber, Paul. 5 million a year would ruin the future economy for our country-born Canadians. Our best bet is if the RE market continues to deflate, immigration numbers are brought down to manageable amount and we actually see the Feds and provincial leaders insert policies that stop the speculation in the housing market including rentals.
So much for building 500,000 homes, so much for our young ever owning a home. Welcome to Liberal Caste Canada. Where homeownership is a dying dream and private equity firms are competing with families. If you work for the government or are lucky to be part of some rich Canadian family, you are doing ok. The rest of us? We can live in tent and let us eat cake, if we are hungry.
Canada has wasted the last 8mos making sure the ‘right’ people were elected in 2025. Thus hax put us in a bad spot. Luckily canadas energy, miing, ag have haf premier smirh advocating for them since november.
The reality is canadas trade qith the usa is mostly oil, gas, refined products, fertilzer, metals and equipment gor extraction. Youwould know that witje the biased and false coverage in the media.
If not for smith reducing tariffs on theze items, the recession probabilty would be 100%.
Instead of self serving lies from central canada, alberta and western canada are what generates the trade surus with the usa, not subsidized auto jobs, or banks.
The nrw liberal government will definately fail in negotions with trump. Trump reallt doesnt like carney or any other liberal he might face. Now sometimed that can ne an advantage, nutsending a bank lackey with a huge ego who has been trashing trump fpr months is gping to fsil.
Fitch has said on the current trajectory, AA is a possibility along with pension funds suffering losses. Any leader recently taken $10b out if CPP fund?