Anastasia Yakovlev

The Bank of Canada today maintained its target for the overnight rate at 2.75%, with the Bank Rate at 3% and the deposit rate at 2.70%. While some elements of US trade policy have started to become more concrete in recent weeks, trade negotiations are fluid, threats of new sectoral tariffs continue, and US trade actions remain unpredictable. Against this backdrop, the July Monetary Policy Report (MPR) does not present conventional base case projections for GDP growth and inflation in Canada and globally. Instead, it presents a current tariff scenario based on tariffs in place or agreed as of July 27, and two alternative scenariosone with an escalation and another with a de-escalation of tariffs. While US tariffs have created volatility in global trade, the global economy has been reasonably resilient. In the United States, the pace of growth moderated in the first half of 2025, but the labour market has remained solid. US CPI inflation ticked up in June with some evidence that tariffs are starting to be passed on to consumer prices. The euro area economy grew modestly in the first half of the year. In China, the decline in exports to the United States has been largely offset by an increase in exports to the rest of the world. Global oil prices are close to their levels in April despite some volatility. Global equity markets have risen, and corporate credit spreads have narrowed. Longer-term government bond yields have moved up. Canadas exchange rate has appreciated against a broadly weaker US dollar. The current tariff scenario has global growth slowing modestly to around 2% by the end of 2025 before returning to around 3% over 2026 and 2027. In Canada, US tariffs are disrupting trade but overall, the economy is showing some resilience so far. After robust growth in the first quarter of 2025 due to a pull-forward in exports to get ahead of tariffs, GDP likely declined by about 1.5% in the second quarter. This contraction is mostly due to a sharp reversal in exports following the pull-forward, as well as lower US demand for Canadian goods due to tariffs. Growth in business and household spending is being restrained by uncertainty. Labour market conditions have weakened in sectors affected by trade, but employment has held up in other parts of the economy. The unemployment rate has moved up gradually since the beginning of the year to 6.9% in June and wage growth has continued to ease. A number of economic indicators suggest excess supply in the economy has increased since January. https://www.bankofcanada.ca/2025/07/fad-press-release-2025-07-30/

A special report from the BMO Real Financial Progress Index reveals concerns about the cost of living and economic uncertainty have not cooled Canadians summer travel plans, with 62% planning on spending the same amount or more on vacations and travel this summer compared to 2024. Nearly four in five Canadians (77%) plan on travelling this summer, with an average budget of $3,825, which includes the cost of flights, hotels and accommodations, rentals, gas and food. The survey examined how Canadians are preparing for their summer vacation plans and found: 59% are opting to travel within Canada to save money. More than half (55%) have altered their vacation plans due to rising costs and inflation. 46% have reduced their spending throughout the year to afford their summer vacation plans. Nearly a third (32%) admit to compromising their long-term savings to afford travel plans. The BMO Real Financial Progress Index also explores Canadians summer spending plans and forecasts: Warming up for wedding season: 34% plan on spending the same amount or more on weddings for family and friends this summer compared to last year. Over half (54%) do not plan on spending on weddings for family and friends this summer. Storm of celebrations and steady spending: Two in five (39%) plan on spending the same amount or more on special events, including graduations and showers this summer than they did in 2024. Less than half (48%) do not have plans to spend on special events this summer. Family activity budgets feel the heat: 29% will spend the same amount or more on summer camps and childcare compared to 2024. 61% have no plans to spend on summer camps and childcare this year. Sawdust and sunshine: 42% will spend the same amount or more on home renovations. 44% do not have home renovation plans during the summer. Sunny with a chance of splurging: Nearly a third (30%) plan on spending the same amount or more for a large purchase including a home, a car, a boat, etc. 57% do not plan on making a large purchase this summer. https://about.bmo.com/bmo-survey-summer-travel-spending-heats-up-despite-economic-concerns/