Macroeconomic overview
Sections: GDP growth Inflation
GDP growth
AI investment is sustaining US economic growth, contributing 1.1% to GDP growth in the first half of 2025 and emerging as the strongest driver of expansion. Canada’s outlook, by contrast, remains subdued until export conditions improve.¹
US
The IMF raised its US GDP growth forecast for 2025 to 2.0%, up from earlier forecasts of 1.9% in July and 1.8% in April. This increase was driven by steady consumer spending, strong investment in AI and lower-than-anticipated tariff impacts. Published data from the Bureau of Economic Analysis show Q3 2025 economic growth reached an annualized rate of 4.3%, surpassing expectations. This growth was driven by consumer spending, exports, and government expenditures, partially offset by a decline in investment. This performance may improve the final GDP outlook for 2025. GDP growth is projected to reach 2.1% in 2026, supported by increased productivity from AI and a shift toward high-tech industries. However, policy uncertainty may limit a stronger recovery.²
Canada
Canada’s real GDP is expected to show a growth of 1.2% for 2025, down from the IMF's April forecast of 1.4%. Tariffs and ongoing trade tensions are hurting exports to the US, slowing business investment, and leading to a wider economic slowdown. The labor market is also under pressure, as trade disruptions have stalled the recovery that began mid-2024.
Growth is expected to be 1.5% in 2026 if exports stabilize and trade negotiations help reduce barriers.²
Inflation
US inflation is set to remain above the Central Bank's target due to tariffs and service costs, while Canada is set to achieve near-target inflation due to stable policy and moderating import prices.
US
US inflation is now expected to show a rate of 2.7% in 2025, down from the April estimate of 3%. It may fall further to 2.4% in 2026 but will likely stay above the Federal Reserve’s 2% target for now. Core inflation is expected to remain steady, driven by higher costs for tariffs, housing, and services, despite latest available reports indicating a decline in energy prices in late 2025.¹
JP Morgan predicted that the effective tariff rate for 2025 will reach 14.4%, up from 2.4% in 2024. About half of these costs are expected to be passed on to consumers, adding around 1% point to inflation through mid-2026 before easing later that year. As a result, the Federal Reserve will probably lower rates slowly, but fiscal and trade risks could still push prices higher.² ³
Canada
Canada’s inflation is expected to stay near 2% in 2025, in line with the Bank of Canada’s target. Moderated import prices, rate cuts, and stable government spending have contained inflation, leading to faster disinflation than most advanced economies.⁴
Goods inflation remains firm due to past global cost pressures, while food prices still reflect earlier commodity and currency shocks. Energy inflation is moderate following the removal of the consumer carbon price, and shelter costs are easing as rental supply grows. Inflation is expected to remain near 2% in 2026, with upward pressure from tariffs and supply chain changes offset by softer domestic demand and labor market conditions.⁴
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