Energy shock and weak growth raise fresh questions for Canada’s housing market
Canada faces a roughly 30% chance of falling into recession, former Bank of Canada governor Stephen Poloz warned, as war-driven energy shocks and trade tensions threatened to tip a fragile economy over the edge. Growth has hovered near 1%, he noted, even before the latest oil price spike.
Global institutions already highlighted how the Iran war and disruptions in the Strait of Hormuz have darkened the outlook. The International Monetary Fund cut its 2026 growth forecast and warned that downside risks to the world economy are “tremendous” if conflict and elevated energy prices persist.
“It’s not about somehow avoiding all that,” Poloz told CTV Question Period. “Then on top of that, we’ve got this oil shock.”
“Can we do some offsets? Like, for example, the government changes the tax structure on gasoline. That’s a mitigant, a short-term kind of offset,” he added.
“But really, for the Trump tariffs, what we need is to find replacements, as opposed to offsets.”
Poloz pointed to conventional energy and defence as sectors where Ottawa could lean in.
“Canada may get a little bit luckier than others, because we’re a big producer and net exporter of oil,” he said.
“That doesn’t mean we can just suddenly walk away and not have a recession with everybody else, but it means it’s mitigated by the revenue flows from the oil.”
Global shock, local divergence
Even if aggregate GDP managed to sidestep a deep downturn, the impact across the country would be uneven, Poloz warned.
“Within Canada, we’d be a case with our head in the oven and our feet in the freezer, (with) very big divergences across sectors, households versus companies, regions, etc.,” he said.
The IMF’s severe scenario envisaged global growth slipping toward levels historically associated with recession if oil prices stay high and shipping disruptions in the Strait of Hormuz persist.
That kind of shock will filter quickly into Canadian wholesale funding costs and household budgets – a key concern in a market where many borrowers are already stretched by prior rate hikes.
What it means for Canada’s mortgage market
For mortgage professionals, the comments marked another escalation in a debate Poloz helped ignite in late 2024, when he said that Canada was effectively already in recession once rapid population growth was stripped out of the headline numbers.
With recession odds rising but not guaranteed – Poloz put the probability at about 30% – the cycle still allows time to stress-test portfolios, revisit underwriting assumptions and help borrowers build buffers, but the window to prepare for a more adverse scenario is narrowing.
“A global recession, if [the war] is very short – which I think is the US’s plan here – would drive interest rates lower,” Toronto mortgage broker Drew Donaldson told Canadian Mortgage Professional.
“It may actually end up helping the Canadian housing market. Is there a lot of doom and gloom out there? Absolutely. Is there a lot of uncertainty with the Iran war? There has been.
“But if you really look closely and trust the process, I’m thinking the second half of this year will be much more positive. The economy will be in better shape, rates will probably be lower finally, and hopefully the Iran war and maybe the Ukraine war are things of the past.”
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