Strong start to 2025 unlikely to be sustained

The near-term economic outlook has brightened, with lower interest rates feeding through and consumption benefitting from the recent strong pace of real income growth. That should help to drive quarterly GDP growth above 2% annualised in the first half of 2025. The pick-up will be short-lived, however, with growth set to ease from mid-2025, as immigration slows and the US includes Canada in its universal import tariff. GDP growth is set to be 1.8% in 2025 and 1.5% in 2026. Nonetheless, a rise in inflation back above 2% will prevent the Bank from cutting its policy rate below 2.50%.