The Bank of Canada is ‘cautious’ heading into 2026, with all eyes on CUSMA - National | Globalnews.ca

The Bank of Canada says it’s staying “cautious” heading into 2026 as uncertainty remains high with the global trade war, tariffs and a trade deal with the U.S. set for review next month. On Tuesday, the Bank of Canada released its written summary of deliberations from the last rate announcement. This comes after the Bank opted to leave borrowing rates alone earlier in December, and after cutting its benchmark rate by a total of one per cent over the course of four meetings in 2025. Although there were several areas of caution, the Bank said Canada’s economy was doing somewhat better than expected overall. “Members agreed the Canadian economy was showing signs of resilience after a year of trade upheaval, but uncertainty remained high,” said the Bank of Canada. “They would remain cautious in interpreting incoming data given recent volatility and would be prepared to react if their outlook changed materially.” The trade war began in March, when U.S. President Donald Trump imposed tariffs on goods and services from virtually all countries, including Canada. Although the terms outlined in the Canada United-States Mexico Agreement, or CUSMA, meant the majority of Canada’s exports would be free of tariffs, the duties imposed on critical sectors like steel, aluminum, lumber, automotive and others meant GDP was being impacted. Trade policy remains a critical piece of Canada’s economy heading into 2026, as the current CUSMA is set for review. If a renewed trade deal continues to see most, if not all goods remain free of tariffs, then the Bank sees the economy growing, albeit slowly. However, if CUSMA expires with no new deal in place or more tariffs are imposed on Canadian goods, then the economy could tilt in the opposite direction. Get daily National news Terms and Conditions and Privacy Policy . “Members agreed that the upcoming review of the Canada-United States-Mexico Agreement (CUSMA) was a significant risk. The uncertainty leading up to and during negotiations would likely weigh on business investment,” said the Bank of Canada. “A worst-case scenario involving the dissolution of CUSMA and higher tariffs would be very damaging to the Canadian economy.” Gross domestic product, or GDP, measures the total value of all goods and services produced in an economy like Canada’s in a given period. In the three months spanning from March through May, Canada’s GDP fell by a total of 1.8 per cent. Two back-to-back quarters, or a six-month period of negative GDP meets the technical definition of a recession, but the third quarter saw a rebound. “After declining by 1.8 per cent in the second quarter, GDP grew by 2.6 per cent in the third quarter, which was stronger than expected,” said the Bank of Canada. The Bank also signalled that the current fourth quarter, October through December, will likely see another period of weaker economic activity, leading into a slightly positive first quarter of 2026. “They (governing members) expected fourth-quarter GDP to be soft, with increases in consumption, housing activity and government spending offsetting weakness...

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