Intelligent Investment
New Year, New Uncertainty
Canada Monthly Market Commentary - January 2026
January 30, 2026 2 Minute Read
The start of this new year has seen the resurgence of geopolitical conflict and tariff threats, which continue to cloud the economic outlook for Canada. After a prolonged period of uncertainty all throughout 2025, business and consumer sentiment remain subdued as tracked in surveys by the Bank of Canada. With a rising number of firms planning to cut jobs and lower household spending intentions, economic growth for 2026 is expected to soften and then pick up gradually. In the Bank of Canada’s latest projections, GDP growth is forecast to slow from 1.7% in 2025 to 1.1% this year before rising to 1.5% in 2027.
Uncertainty around these projections, however, remain unusually high as noted by the central bank. Geopolitical events are hard to predict and escalating tensions could have sharp global impacts. The review of CUSMA is another major source of uncertainty given the very wide range of possible outcomes. But for the moment, the Bank of Canada’s base case assumes that the existing trade deal is preserved and uncertainty eases following the review.
With so much uncertainty over the outlook, the Bank of Canada decided to maintain the policy interest rate at 2.25% in this month’s meeting. Expectations are for the policy rate to hold throughout the year and the central bank has been ambiguous in its forward guidance, noting the difficulty in predicting “the timing or direction of the next change.” But the Bank of Canada will be monitoring risks closely and are “prepared to respond” if the outlook changes materially.
Meanwhile, investment momentum has been building in the Canadian commercial real estate market. Stability in the interest rate outlook and stronger investor confidence has broadened the base of active purchaser groups as noted in the CBRE Canadian Cap Rates & Investment Insights Q4 2025 report. Robust debt liquidity has supported increased investment activity across all asset classes. In particular, sentiment around the office sector has rebounded considerably as evidenced by the recent string of major office transaction announcements. While overall cap rates edged lower, it was in seniors housing and downtown office where yields decreased the most in Q4 2025.
Economic Highlights:
- Employment grew by 8,200 jobs in December 2025 and the unemployment rate also increased to 6.8%.
- Headline inflation rose to 2.4% in December 2025 largely due to last year’s tax holiday, while core inflation measures eased slightly.
- Retail sales grew 1.3% month-over-month in November 2025 with advanced estimates indicating a 0.5% decrease in December.
Viewpoints:
- Business sentiment subdued as one in five firms plan to cut workers, BoC surveys show
- Bank of Canada holds key rate steady as CUSMA talks loom over its outlook
- CBRE Canada Cap Rates & Investment Insights Q4 2025
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