Are interest rates set to remain elevated for the foreseeable future?
Mortgage lenders and borrowers may be facing a prolonged period of uncertainty as the Organisation for Economic Co-operation and Development (OECD) projects a global economic slowdown through 2026, driven largely by weaker growth in the US, Canada, and Mexico.
With central banks expected to tread cautiously on interest rates, housing markets may see limited activity and restrained price movements.
According to reporting from the Financial Post, the OECD downgraded its global Gross Domestic Product (GDP) forecast to 2.9% for both 2025 and 2026, a decline from 3.3% in 2024.
The organization cited tightening financial conditions, reduced confidence among businesses and consumers, elevated policy uncertainty, and the persistence of trade barriers as core factors behind the weaker outlook.
North America to bear the brunt
The slowdown is projected to be most pronounced in North America. OECD estimates show US GDP falling from 2.8% in 2024 to 1.6% in 2025, then 1.5% in 2026.
Canada's growth is forecast at 1% in 2025 and 1.1% in 2026, down from 1.5% this year.
While Canada received a slight upgrade compared to earlier OECD projections from March, the report outlines a challenging economic environment for the country, including declining exports to the US, weaker household consumption, and lower levels of business investment.
Housing activity expected to remain subdued
Canada's housing market is expected to remain broadly flat during the first half of 2025. The OECD attributes this to trade disruptions, tariff impacts, and uncertainty stemming from US economic policies.
The report specifically mentions that since February 2025, higher tariffs on imports to the US have weighed on Canada’s external outlook due to the close economic ties between the two countries.
The OECD anticipates the Bank of Canada will lower its key rate by 50 basis points, bringing it to 2.25% this year. However, the effect of this monetary policy shift is not expected to be felt until 2026.
Meanwhile, inflationary pressure in the US tied to rising import prices may approach 4% by the end of 2025, keeping the Federal Reserve from adjusting rates until the following year.
OECD chief economist Álvaro Pereira said that nearly all economies will feel the strain of weaker trade and slower expansion.
“Weakened economic prospects will be felt around the world, with almost no exception. Lower growth and less trade will hit incomes and slow job growth,” said Pereira to the Financial Post. He emphasized the need for policies aimed at easing trade tensions to improve growth conditions.
How might these projections influence your mortgage plans or lending outlook for the coming year? Join the conversation in the comments.
