Deutsche Bank Sees Bleak Growth Outlook for Canada, Expects BoC Cut and Weaker Loonie

07:09 AM EDT, 10/28/2025 (MT Newswires) -- Canada's growth picture remains bleak, with the Bank of Canada's latest Business Outlook Survey pointing to persistently weak conditions, said Deutsche Bank.

The bank expects Canada to materially underperform most G10 peers over the coming year, noting the country posted the weakest export growth globally in recent quarters - a trend now compounded by the breakdown of U.S.-Canada trade talks.

Deutsche Bank said the soft growth backdrop should lead to a 25-basis-point rate cut by the BoC on Wednesday, though the latest inflation data may limit any dovish surprises. The central bank has stressed a broader set of core inflation metrics and shorter-term measures spanning the past three to six months rather than the full year.

However, the September higher-than-expected inflation print was unhelpful in all regards.

There are some expectations for fiscal easing, especially as the Fall Budget comes into view next week, pointed out the bank. But the easing doesn't look large in the near-term, at least.

Over time, a move toward more capital expenditure should help plenty with Canada's lagging productivity, but the Canadian government is looking to partly fund this through cuts to operational expenditure. That seems to mean less public sector employment, which had grown strongly under the previous prime minister.

Those plans are clearly having an impact already, confidence amongst public sector workers has slumped.

More broadly, the BoC BOS suggests little appetite to hire. Some further labor market softening and inflation softening too, with a lag -- could be the catalyst for the Canadian dollar (CAD or loonie) to weaken more, according to Deutsche Bank. It's already lost a lot of carry appeal, positioning sixth in the G10 ranking, and that could slip further.

That's a vulnerable position for a country that has been more reliant on net debt inflows than anyone in G10, noted the bank. USD/CAD still looks low compared with relative rates.

Deutsche Bank is "happy" to keep its bearish CAD view versus the US dollar (USD) and Australian dollar (AUD).

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