Canada: 2025 Article IV Consultation-Press Release; and Staff Report

The 2025 Article IV Consultation highlights that Canada is adjusting to a significant external trade shock amid heightened global uncertainty. Higher U.S. tariffs have disrupted tightly integrated North American supply chains and weighed on exports, investment, and confidence. Economic activity is expected to remain subdued in the near term, with output below potential as trade adjustment and uncertainty continue to restrain exports and investment, compounded by slower immigration. Inflation is projected to remain close to the 2 percent target, supported by softer demand and firms’ absorption of higher costs. Risks to the outlook have become more balanced but remain tilted to the downside. The current policy mix is appropriately calibrated. With inflation contained and the economy operating below potential, the monetary stance is appropriate, with scope to recalibrate if disinflationary pressures persist. The financial system remains resilient, consistent with recent Financial Stability Assessment Program findings, although pockets of vulnerability persist, including elevated household leverage, commercial real estate exposures, and growing nonbank intermediation. Strong capital and liquidity buffers, robust oversight, effective crisis-management arrangements, and sound federal–provincial coordination provide important safeguards.