Canada's major bank economists agree: tariff headwinds have yet to fully land ahead of the October BoC call
Canada's leading bank economists say July's flat GDP reading is less significant than what is still coming — warning that the full weight of US tariffs has yet to hit the economy and that the Bank of Canada's (BoC) October 28 rate decision will hinge far more on the months ahead than the month just reported.
The worst is not behind us
David-Alexandre Brassard, chief economist at CPA Canada in Ottawa, offered the assessment of the risks following the release.
"After several months of surprisingly strong growth, July's flat reading shows Canada's economy entered the tariff dispute with less momentum," Brassard said.
"The economy is clearly slowing, but it hasn't stalled. Early estimates suggest growth returned in August, which should result in modest growth in the third quarter."
But he cautioned that the resilience visible in the current data should not be mistaken for durability.
"Economic activity typically takes longer than the labour market to react to tariffs, so we shouldn't assume the worst is over," he said.
"With new restrictions on Canadian products taking effect and tariff costs continuing to work their way through supply chains, there are still significant risks to growth in the months ahead."
Marc Ercolao, economist at TD Economics in Toronto, described Q3 as tracking "a solid 2% annualised" — consistent with a moderation following Q2's 3.3% annualised expansion, the strongest quarterly result in more than three years.
Ercolao flagged that renewed US–Canada trade frictions and persistent energy costs will continue to weigh on household and business activity, but said this report alone is "unlikely to materially alter the Bank of Canada's outlook."
Andrew Grantham, senior economist at CIBC in Toronto, was more direct. He characterised the July data as "old news" given that it predates the fresh wave of US tariffs that came into force in late August.
He also argued that upcoming employment and consumer price index (CPI) data, alongside the BoC's own Business Outlook Survey, will carry far more weight for the October 28 decision.
CIBC forecasts Q4 growth sliding below 1% as the direct and indirect effects of tariffs drag on confidence and spending, with a meaningful recovery not expected until early 2027, assuming a trade deal is reached.
Abbey Xu, economist at RBC Economics in Toronto, confirmed Q3 is broadly in line with her team's 1.8% forecast but flagged the 50% US tariffs on a subset of Canadian exports, imposed August 22, as a significant downside risk not yet captured in the data.
As Trump's latest tariff escalation continues to cloud Canada's housing outlook, RBC's base case holds the BoC on the sidelines through the end of 2026 before rates begin rising gradually in 2027, though Xu noted that recent BoC communications have signalled risks are tilted toward earlier rather than later hikes.
For mortgage brokers watching the overnight rate, the hold at 2.25% keeps variable mortgage rates anchored for now. But as rising bond yields and new US tariff pressure increasingly cloud the Bank of Canada's rate path, upside inflation risks from persistent energy costs are adding complexity to any fixed-rate outlook.
Nathan Janzen and Claire Fan of RBC say the Bank of Canada is more likely to hold rates steady than cut further, with the next move potentially being a hike in 2027.https://t.co/CQEcNRvIk2
— Canadian Mortgage Professional Magazine (@CMPmagazine) September 28, 2026
What the July data actually showed
Statistics Canada reported that real GDP was unchanged month-on-month in July, matching the advance estimate. Half of industries registered growth.
On the goods side, construction rose 1.3% and utilities gained 1.7%, but those gains were offset by a 0.9% decline in manufacturing — driven partly by refinery downtime in southwestern Ontario — and a 0.5% drop in mining, quarrying, and oil and gas extraction, following production disruptions at a Saskatchewan mine.
Retail trade fell 1.0%, weighing on the services sector, while accommodation and food services rose 0.8%, lifted by increased international travel linked to the World Cup.
The August advance estimate points to a 0.2% gain, with Q3 GDP as a whole tracking approximately 2% annualised.
Meanwhile, Bank of Canada governor Tiff Macklem already warned that a fresh round of US tariffs and elevated global oil prices risk undoing Canada's hard-won economic recovery.
If the latest duties remain in place, the Bank estimates fourth-quarter GDP growth could be roughly halved to below 1%. The affected goods represent approximately 5% of Canada's exports to the United States.
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