With the economy showing more resilience than expected after a rollercoaster start to the year, the Bank of Canada’s recent decision to hold rates steady comes as little surprise, says CPA Canada’s (Chartered Professional Accountants of Canada) chief economist.
“Just a few months ago, Canada was facing a technical recession and had lost more than 100,000 jobs. Today, the outlook is stronger,” says David-Alexandre Brassard. “Economic growth has exceeded expectations, employment has rebounded and the economy has proven more resilient than many anticipated.”
Recent economic data points to stronger momentum, with April recording the strongest growth since summer 2025 and job gains in recent months nearly offsetting earlier losses. Meanwhile, core inflation has remained close to the Bank of Canada’s two per cent target despite volatility in global oil markets.
While uncertainty surrounding the Canada-U.S. relationship remains, Brassard notes that those risks are already reflected in most economic forecasts and have not materially changed the near-term outlook.
“The central bank is in a comfortable position right now,” says Brassard. “Inflation remains under control and there is no compelling reason to intervene on the policy front.
“The next move could ultimately go either way, but for now the strongest case is to remain on the sidelines and monitor incoming economic data.”
In an interview with Retail Insider, Brassard spoke about the current situation.
Question: The Bank of Canada held interest rates steady, citing a stronger-than-expected economy. What economic indicators do you see as the strongest evidence that Canada has turned a corner?
Answer: We are seeing signs that the economy is turning a corner, but it remains too early to tell. The indicator I’m watching most closely right now is job creation because it reflects economic and business optimism more than surveys do. If we manage to create jobs without the demographic growth to support them, then that is encouraging. GDP has been volatile in recent quarters, largely because of changes in international trade and inventories, mostly driven by American tariffs. Higher oil prices have also boosted GDP, but that is not exactly the brightest green light there is.
Q: You’ve said the central bank is in a “comfortable position” right now. What developments over the next few months could change that assessment and prompt either a rate cut or a rate hike?
A: There are two main scenarios which could change the Bank of Canada’s upcoming decision. The first is related to inflation. So far, it appears that the spike resulting from the Iran conflict has been mostly contained. If the conflict reignites or if oil prices translate into inflation, the Bank could decide to rate hike. The second would be economic underperformance in Canada, which could result from trade uncertainty, weaker demographics or slower global growth. This would also prompt a rate hike.
Q: Despite improved economic data, uncertainty around the Canada–U.S. relationship and CUSMA (Canada-United States-Mexico Agreement) remain. How significant are those risks for Canadian businesses, and which sectors are most exposed?
A: The absence of an agreed renewal to CUSMA means that uncertainty will remain and the current state of affairs is unchanged. That means sectoral tariffs will continue to hurt the manufacturing, transportation and warehousing industries, as well as wholesale trade. Recent economic data has been more encouraging, but the Canadian economy has struggled with growth and job creation, and investment levels have been flat since the tariffs were implemented. Therefore, the uncertainty around the Canada-U.S. relationships remains a major risk to the outlook.
Q: What does this more resilient economic outlook mean for Canadian consumers in terms of spending, borrowing, and confidence for the remainder of the year?
A: Wage growth has been strong enough to sustain consumption growth, but we have seen some consumer indicators worsen, including lower savings rates, higher mortgage delinquencies and more insolvencies. I expect consumer growth to remain relatively robust, but it is less likely to surprise to the upside. As for borrowing, we see consumer credit metrics for households being relatively stable, but mortgage borrowing should remain muted amid the slower housing market, with slow sales and declining prices.
Q: From a retail perspective, how are steady interest rates and improving economic conditions likely to affect consumer spending, retailer performance, and expansion plans, and what impact could broader economic trends still have on the retail sector?
A: For retail spending, we have seen it impacted slightly by the population declining, but it grew per capita on the back of higher wages. I expect modest growth, but again, keeping in mind that growth for the last few months has worsened consumers’ financial positions. With another three or four quarters of population decline, we should see constrained growth in retail spending.
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