UBS Notes Mixed Signals in Canada's Economy Ahead of Wednesday's Bank of Canada Meeting

11:11 AM EDT, 04/28/2026 (MT Newswires) -- UBS said it expects the Bank of Canada to remain on hold and keep its options open regarding future policy decisions at Wednesday's policy meeting.

Friday's retail sales were up 0.7% over the month in February, with an upward growth revision to January to 1.2% versus 1.1% prior, and a flash estimate for March of 0.6%. Now the bank would fade the March strength a little, given this is a nominal print and gasoline prices surged in the month, but overall, this data signals a robust start to the year for the Canadian consumer.

Pair last week's data with the subdued labor market data and mixed inflation picture and UBS thinks the BoC has reason to pause, wait, and assess the outlook before adjusting policy.

The BoC will also release its updated Monetary Policy Report (MPR) on Wednesday.

The bank predicts a downward revision to the BoC's Q1 gross domestic product projection in the new MPR. In January, the BoC was tracking a 1.8% annualized pace of growth in Q1, but it was likely too optimistic on the contribution from net exports. UBS expects that it comes down to about 1.5% seasonally annually adjusted rate and shaved a tenth of its expectation for annual growth in 2026.

However, the BoC may boost growth elsewhere and that could offset the hit to the annual projection. The bank estimates some shift in the composition of growth this year relative to January.

While the full impact of the oil price shock on growth remains uncertain, it should shift the composition, boosting energy exports and dampening consumption. For 2027, UBS sees no change from the 1.5% pace of GDP growth expected in January and a 1.7% pace for 2028.

In the January MPR, the BoC marked its expectations for potential growth in 2026 up but down in 2027. The bank forecasts that these aren't revised all that much in Wednesday's MPR, with slowing population growth to weigh on potential.

UBS projects the BoC seeing a slightly stronger range for potential by 2028, with fading deltas from a slowing population growth and the potential boost of efficiency gains from the diffusion of Artificial Intelligence.

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