Bank of Canada Faces Test: OECD Advises Vigilance on Inflation as Trade War Looms

The Bank of Canada is facing a significant test, with the Organization for Economic Co-operation and Development (OECD) advising it to remain vigilant on inflation as the global trade war intensifies. The OECD has significantly lowered its global economic growth projections, now expecting a decline from 3.3% in 2024 to 2.9% in both 2025 and 2026. This downward revision highlights the widespread economic challenges ahead.
The OECD’s latest outlook report underscores that “weakened economic prospects will be felt around the world, with almost no exception,” leading to “lower growth and less trade [that] will hit incomes and slow job growth.” Canada is specifically named as one of the nations expected to be a significant contributor to this global economic decline, adding pressure on its central bank.
The report specifically warns that “protectionism” will put pressure on inflation, leading to higher costs for goods and services. In this context, the OECD suggests that central banks like the Bank of Canada “should remain vigilant.” While no interest rate hikes are expected from the Bank of Canada on Wednesday, the report cautions that if inflation does spike, there is “potential to return to a period of higher borrowing costs again.”
Beyond monetary policy, the OECD also stresses the importance of increasing investments to stimulate business development and improve public finances. This echoes the efforts of Prime Minister Mark Carney to bolster the Canadian economy and diversify trading partners, underscoring the multifaceted approach required to navigate the economic fallout from the trade war.