Budget 2025 gives Bank of Canada room to steer recovery, explains BoC Governor Tiff Macklem

After months of economic turbulence, the message from Ottawa is one of cautious optimism — from both Parliament Hill and the Bank of Canada.

Bank of Canada (BoC) Governor Tiff Macklem told Canadian senators in early November (1) that the country’s economic slowdown “is more than a cyclical downturn — it is also a structural transition."

According to Macklem this transition is driven largely by U.S. trade tariffs and the ongoing global uncertainty. But with the Bank of Canada’s policy rate lowered to 2.25%, Macklem reaffirmed that the nation's central bank is steadfastly focused on ensuring Canadians “continue to have confidence in price stability through this period of global upheaval."

BoC and Canadian Chamber of Commerce are confident of the direct Budget 2025 takes Canadians

Governor Macklem's comments came just days after Prime Minister Mark Carney and the federal Liberals tabled the first national Budget in 18 months. Budget 2025 was delivered with the intent of positioning Carney's Liberals as the team capable of managing this transition.

After 18 months without a budget, the federal government’s new plan places clear emphasis on investment and productivity growth, echoing the BoC’s call for sustainable long-term recovery. The Canadian Chamber of Commerce described it as a long-awaited opportunity to reignite confidence in Canada’s economy (2): “Canada has an urgent need to get back to a growing, productive economy,” said Candace Laing, president and CEO of the Canadian Chamber of Commerce (the Chamber) in a recently released statement (3). “In this federal Budget, the government has heard business’ call to focus on the economy and has made some tough choices to attract investment."

The tough choices the federal government faces

Even with the tough choices facing the federal minority Liberal government, Budget 2025 delivered a stable and confident future for Canada's economy by focusing on:

• public backing for capital investments
• operational restraint through spending cuts
• renewed defence and infrastructure funding.

These measures — while aimed at restoring competitiveness — also align with the Bank of Canada’s monetary easing, which seeks to spur private investment and spending as inflation cools.

“To attract capital investment to fuel the growth we need, the government is making some large expectations on returns,” said Executive Vice President and Chief of Public Policy at the Chamber, Matthew Holmes (4). “It will be up to businesses to see if this will be enough to spur the level of economic activity the government hopes for."

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Economic conditions: Weak but stable

In his statement to the Senate, Macklem confirmed that Canada’s GDP contracted by 1.6% in the second quarter of 2025, with trade-sensitive sectors like autos and steel taking the brunt of the economic contraction. However, household spending and housing investment remained resilient. The Bank expects low to moderate growth in 2025, with an average economic growth rate of 0.75%; however, Governor Macklem is conservatively positive about the nation's economic potential — anticipating a pick up in the growth rate, to 1.5% by 2027.

Another key factor is inflation. Currently, inflation hovers around 2.4% and is forecast to stay close to the BoC’s 2% target. This rate is key, as it acts as a lynchpin with a strong influence on Canadians’ purchasing power. “If the economy evolves roughly in line with our outlook,” Macklem said, “Governing Council sees the current policy rate at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment (5).”

Business and consumers share the same goal: Stability

Budget 2025 complements that monetary stance by trying to rebuild investor confidence and relieve pressure on small businesses that have borne the brunt of slower demand and higher borrowing costs.

“Many business owners have used their personal savings to stay afloat — leaving little room to absorb new costs,” Laing said (6). “They’ve carried extraordinary burdens over the past five years but need breathing room to scale.”

That sentiment aligns with Macklem’s assessment that the weakness Canada is facing “cannot be undone by monetary policy alone (7).” Both institutions are effectively calling for the same solution: a coordinated fiscal–monetary balance that boosts productivity, lowers costs, and keeps inflation steady.

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Call to action

For investors, this alignment between fiscal and monetary policy offers a window of opportunity. With interest rates easing and government backing large-scale investments, Canadian financial and industrial sectors are well positioned for gradual growth. Exposure to Canadian bank stocks, financial ETFs, or diversified dividend funds could benefit from renewed lending activity as confidence returns.

For working Canadians, Governor Macklem's message to Canadian senators is a vote for renewed reassurance in the nation's economy and standard of living. The BoC’s measured approach and the federal budget’s investment focus both signal that Canada’s financial system remains strong and resilient. Deposits are safe, inflation is stabilizing, and borrowing costs are easing — all signs that the country’s recovery is steady, not speculative.

Article sources

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Bank of Canada: Opening Statement before the Senate Standing Committee on Banking, Commerce and the Economy (1, 5, 7); Canadian Chamber of Commerce (3, 4, 6)