Geopolitics, trade tensions and a soft economy keep Canada’s mortgage outlook on edge
Canada’s mortgage market has been bracing for a long pause from the Bank of Canada. Scotiabank’s latest forecast suggested that pause could end sooner than many in the market expected, even as the Iran war casts a fresh shadow over growth.
The bank’s March 24 outlook framed the conflict’s impact on Canada as finely balanced but inflation‑tilted, with higher oil prices offsetting weaker demand.
“Iran war lifts oil prices and uncertainty, but baseline macro impact remains contained,” Scotiabank Economics said.
“On net, we judge the macro impact of the Iran war on Canada to be broadly neutral… That said, oil prices remain the single most important source of uncertainty around the forecast.”
The forecast assumed tensions ease “around mid‑year, with oil prices remaining elevated through Q3 before gradually easing,” and warned that higher energy costs “clearly skew inflation risks to the upside – especially in the US.”
While the US Federal Reserve is expected to deliver just one cut this year and one in 2027, Scotiabank said the Bank of Canada “faces a familiar tradeoff” as weaker data collided with cost‑push pressures from oil.
On the domestic front, “Canada hits a soft patch in early 2026, but recovery remains intact,” the report said.
Weaker labour and trade numbers meant Scotiabank “now expects weaker growth in early 2026, with average GDP growth revised down to 1.3% for the year,” before a rebound to 2.0% in 2027 on the back of fading trade headwinds, past rate cuts and fiscal support.
Competing calls on the 2026 rate path
Despite that, Scotiabank expect the BoC to lean hawkish.
“We therefore expect the BoC to begin gradually removing monetary stimulus and move toward a more neutral stance by year‑end… we expect the Bank to remain on hold in the near term… before hiking three times in the second half of this year,” it said.
That ran against recent commentary by BMO Economics, where chief economist Douglas Porter called a 2026 hike “a very long shot indeed” for an economy “already straining under higher borrowing costs” as the conflict with Iran rekindled stagflation fears.
Oxford Economics similarly judged that if the war proved short‑lived, the hit to Canada’s outlook “would likely remain contained,” adding about 0.2 percentage points to headline CPI in mid‑2026 but leaving the BoC’s broad holding pattern intact.
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