Canada is already in a recession, and the Bank of Canada must act quickly to bring interest rates down, CIBC deputy chief economist Benjamin Tal told attendees at Mortgage Professionals Canada’s National Conference in Ottawa.
“We are in a recession,” Tal said. “If it’s not a formal recession, it’s a per-capita recession for sure — especially if you live in Ontario and B.C. … What’s happening now is the biggest test to your industry since the 1990s.”
He argued the current slowdown reflects a painful normalization after years of “abnormal” economic and housing conditions. “What we are trying to do now,” he said, “is basically normalize the abnormal — make sense of something that does not make sense.”
Trade tensions remain a key risk
Tal said that “abnormal” period has been shaped in large part by U.S. trade policy under President Donald Trump. He warned that tariffs “are here to stay,” calling them a hidden tax on consumers and a key source of inflationary pressure. “You basically have to mortgage your house to buy a cucumber,” he said.
While he expects the U.S. to eventually find a “manageable equilibrium” in its trade relationships, Tal noted that the damage to global supply chains will continue to weigh on growth and inflation. “Time is not on his side,” he said of Trump. “He will have to compromise, but tariffs will remain.”
He estimated that Canada’s current effective tariff rate with the U.S. is about 8%, but that could rise to roughly 10% to 12% as existing trade agreements are renegotiated. “It will not be across the board,” Tal said. “It will be by sector — deep and narrow. Can we handle it? Absolutely.”
Inflation “no longer an issue”
Tal told attendees he believes inflation has already fallen back to target and that monetary policy is now too tight for an economy that is clearly stalling. His comments came ahead of Tuesday’s inflation report, which showed price growth rising more than expected at an annualized 2.4%.
“Inflation is no longer an issue, period,” he said. “It was never, never, never about inflation. It was always about the cost of bringing inflation down to 2%. And we are there already if you measure it correctly.”
He said the Bank has “the green light to cut interest rates,” predicting a 25-basis-point reduction at the next policy meeting, with another move possible by early 2026. “Our call is that they will cut by 25 basis points, but I will not be surprised if by December or January they will cut another 25,” Tal said.
CIBC’s official forecast sees the Bank of Canada’s policy rate landing at 2.25% and remaining there through the end of 2026.
A rate cut, he added, is needed to help households facing higher renewal costs. “If we don’t change interest rates, 10% of them will see 50% and over increase in their mortgage payments. That’s significant.”
Housing “frozen” as affordability gap widens
Tal described Canada’s housing market as “frozen — houses are too expensive to buy and not expensive enough to build.” He warned that pre-construction activity has slowed sharply, particularly in Ontario and B.C., where the condo sector is already in recession.
“The low-rise segment is doing okay, not great,” he said. “The high-rise, the condo market, is in a recession … If you’re in the market for a condo, that’s your time. It’s down 20% to 22%, and it will be down another 5% to 10% before the market clears.”
Tal said fiscal policy could play a key role in “igniting short-term demand to stimulate supply.” He confirmed he has urged Ottawa to expand its proposed GST/HST relief beyond first-time buyers. “You want to make a difference in terms of affordability, do it for everybody,” he said. “If you do it, do it. If you don’t do it, don’t do it. But don’t play games.”
Counting people, and planning for them
Turning to immigration and housing supply, Tal repeated his warning that Statistics Canada is underestimating the country’s population by nearly one million people due to modelling assumptions about expiring visas.
“When Stats Canada goes to CMHC and others and says population growth next year will be zero, I say, ‘No, it will be 1.5% — because you are overestimating how many people are leaving. They are here.’”
He said that under-counting leads municipalities to plan for too little growth, which “means we’ll have this shortage again and again.”
Still, he sees positives in the government’s recent decision to convert non-permanent residents already in Canada to permanent status. “When you have people arriving to Canada from Canada, they are Canadian experienced,” he said. “They have been working and studying in Canada, they speak the language, they understand the mentality a little bit, the networking is there, they have a job.”
He added that this group is contributing more quickly to the economy and the housing market. Because they’ve already established themselves in Canada, they tend to earn higher incomes and buy homes sooner — often within two to three years, compared to five to seven years for most newcomers.
Relief ahead
Tal ended on a cautiously optimistic note, saying he expects the combination of lower rates, federal spending and eventual stability in U.S. trade policy to lift the economy in 2026 and 2027.
“You went through a very difficult period,” he told conference attendees. “This is the biggest test since 1991, but I believe we are very close to the bottom.”
He also said the housing market needs a short-term boost to “ignite demand and stimulate supply.”
Tal has recommended that the federal government broaden the existing GST/HST rebate on new homes, which currently applies only to first-time buyers purchasing properties under $1 million.
“You want to make a difference in terms of affordability, do it for everybody,” he said. If the government is worried about the fiscal impact, he added, it should also consider what delaying action will cost the economy. “How expensive will it be not to do it? The price of inaction,” he warned.
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Last modified: October 22, 2025