Financial market participants have notably reduced their expectations for a near-term contraction in the Canadian economy., the fourth quarter Bank of Canada Market Participants Survey published published Feb. 9 hows. The median probability of a recession occurring within the next six months fell to 20% from 35% in the third quarter survey.
The 4Q survey was conducted from December 16 to 30, 2025.
This shift in sentiment occurs alongside a minor adjustment to growth expectations. The median forecast for real GDP growth at the end of 2026 was revised to 1.6%, down from the 1.7% projected in the previous quarter. The Bank of Canada’s January 2026 Monetary Policy Report indicated projects that the economy will grow 1.1 percent this year.
First rate hike expected in Q2 2027, moved earlier from previous survey
While the outlook for the policy interest rate remains stable at 2.25% throughout 2026, market participants have adjusted their long-term forecasts upward. The median projection for the policy rate at the end of 2027 (Q4) rose to 2.75%, compared to the 2.50% forecast in November. The first rate hike is expected in 2Q 2027, earlier than Q3 2027 in the previous survey. , The median estimate for the long-term nominal neutral rate is unchanged at 2.75%.
In its Summary of Governing Council deliberations of January 28, 2026, the Bank of Canada emphasized that monetary policy was somewhat accommodative, with the policy rate at 2.25%. The neutral rate is estimated to be between 2.25% and 3.25%.
With the policy interest rate on the stimulative side of the Bank’s estimated range for the neutral rate, and with the updated projection broadly in line with the projection in the October Report, members judged that the current policy interest rate remained appropriate. Governing Council therefore decided to maintain the policy rate at 2.25%. Bank of Canada
Balance of risks recalibrated
The “balance of risks” surrounding the monetary policy outlook has also seen a significant recalibration. In the Q3 survey, 63.4% of respondents believed risks were skewed toward a lower path for interest rates. Now this percentage is at 27%. Instead, 50% of participants now view risks as broadly balanced, up from 33%. Notably, the proportion of those who see risks skewed toward a higher path increased to 23.1% 3.3% in the prior survey.
These data points suggest that while the growth outlook has tempered, market participants see a more stable path forward, with reduced concern for an immediate downturn and an expectation that interest rates may settle at higher levels than previously anticipated.
The survey sample includes 27 representatives from banks, dealers, pension funds, insurers and asset-management and research firms.
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