Bank of Canada Evaluates Potential Conflict from Our Publication
In the latest report published by the World Bank in "Global Logistics", three potential scenarios for future economic conditions have been outlined by the Bank of Canada. These scenarios include the current tariff scenario, a de-escalation scenario, and an escalation scenario.
In the current tariff scenario, GDP is projected to grow by approximately 1% in the latter half of 2025, with an increase to 1.8% by 2027. Inflation remains steady around 2% throughout this period. Tariffs have caused a permanent lowering of the level of economic activity.
In a de-escalation scenario (where U.S. and other nations reduce tariffs), growth could increase to about 2% in the second half of 2025, averaging 1.7% through the end of 2027. Inflation is expected to dip in early 2026 before stabilizing near 2% by 2027.
In an escalation scenario (where tariffs increase), the economy may contract in 2025 but recover in early 2026, averaging 2% growth thereafter. Inflation could rise to just over 2.5% in Q3 2026 before returning to about 2% in 2027.
The Bank of Canada has not released regular economic forecasts for the second consecutive quarter. However, they have observed a reduction in the threat of a severe global trade conflict since April. Exports fell sharply in Q2 2025 due to tariffs but stabilize and increase modestly in the second half of the year, with trade disruptions weighing on potential output growth. Inflation expectations across scenarios generally converge near the 2% target by 2027.
These projections indicate that while tariffs currently suppress growth and keep inflation steady at about 2%, a reduction in trade tensions could boost growth and slightly lower inflation temporarily. Conversely, escalating tariffs would initially deepen the contraction and push inflation above the target before moderating again.
These outlooks reflect the Bank of Canada’s detailed scenario-based approach to the uncertain global trade environment as of late July 2025. It's important to note that these projections are subject to change as new information becomes available.
Global finance and business sectors closely watch the future of global trade, as outlined in the World Bank's "Global Logistics" report. The Bank of Canada's projections suggest that reduced tariffs could positively impact business growth and slightly lower inflation temporarily, while an escalation of tariffs would initially suppress growth and raise inflation above the target before moderating. Politics and general news outlets also follow these economic scenarios, as they could significantly impact the global market.
