In a recent meeting held on January 21, 2025, the Bank of Canada’s Governing Council engaged in a series of discussions focused on the current and projected state of both the Canadian and international economies. The council’s deliberations provided critical insights into their monetary policy decisions leading to the fixed announcement date of January 29, 2025.
Governor Tiff Macklem led the meetings, joined by Senior Deputy Governor Carolyn Rogers and Deputy Governors Toni Gravelle, Sharon Kozicki, Nicolas Vincent, and Rhys Mendes. This phase of their decision-making process follows extensive staff briefings and recommendations offered prior to the meeting.
As deliberations began, the Governing Council turned their attention to the international economy, noting that global growth is expected to remain steady at around 3% over the next couple of years. “The outlook did not incorporate new tariffs threatened by the United States,” said a member of the council, emphasizing the ongoing uncertainties influencing economic forecasts.
The strength of the US economy was a significant topic of discussion. The council members reached a consensus that the fourth quarter Gross Domestic Product (GDP) figures were poised to outperform earlier predictions, largely driven by “robust consumer spending.” Inflation trends in the US also attracted attention, with recent figures indicating a slight uptick primarily driven by core service prices.
Although inflation pressures have persisted, the council noted, “With data suggesting that real wages and productivity were growing at about the same pace, it did not appear that labour costs were feeding into renewed inflationary pressures.” However, the council also recognized the potential risks posed by strong demand coupled with the policies of the new US administration.
Shifting focus to the euro area, the Governing Council members anticipated relatively sluggish growth of just under 1% for 2025, attributing this slowdown to weaknesses in the manufacturing sector, as well as ongoing economic headwinds. In China, members reported an adjustment in growth forecasts due to positive shifts in domestic demand, though challenges linked to an aging population and ongoing issues within the property sector remain significant hurdles for future growth.
Furthermore, global financial conditions exhibited marked divergence, particularly between the US and Canada. “Strong growth prospects and renewed concerns about inflationary pressures had caused US bond yields to rise,” one council member stated, contrasting this with the slight decrease in Canadian yields. The depreciation of the Canadian dollar against the US dollar was also noted, attributed mostly to trade uncertainties rather than solely the difference in policy rates between the two countries.
Discussions then centered on the outlook for the Canadian economy. Recent data revealed a positive trend in economic activity and increasing consumer spending, especially for interest-sensitive goods. The housing market has shown some signs of recovery. “Growth in consumption per person had turned positive in the third quarter of 2024,” stated one council member, indicating optimism for continued economic engagement.
The members expressed expectations for GDP per capita to also show positive growth by the first quarter of 2025, provided that trade disputes do not flare up. They collectively highlighted the importance of a stable trade environment to sustain recovery momentum in the coming months.
With the complex web of international economic developments and domestic indicators, the Governing Council anticipates carefully navigating the evolving landscape as they formulate their monetary policy decisions. Their next formal announcement is set for January 29, 2025, when they will share further insights and guidance on the economic forecasts that underpin their strategies.