<\/p>\n
Canada\u2019s economy entered 2026 on unsteady footing, but Royal Bank<\/a> of Canada (RBC) economists argue\u00a0that monetary policy has already done much of its work \u2013 and that fiscal support now matters\u00a0more for keeping growth alive.<\/p>\n
In their latest Quarterly Canadian Outlook<\/a>, the team said the Bank of Canada still has\u00a0room to respond if conditions deteriorated.<\/p>\n
\u201cThe BoC still has room to boost to the economy through lower interest rates if the backdrop were to weaken, or inflation to slow more than we expect,\u201d the report said.<\/p>\n
That safety valve, however, remains\u00a0firmly in the background.<\/p>\n
\u201cOur cautious optimism that the economy will continue to improve means we don\u2019t think further reductions will be needed,\u201d the economists said, pointing to stabilizing labour markets and an easing shock from last year\u2019s United States\u00a0tariff escalation.<\/p>\n
Instead, the heavy lifting has\u00a0already shifted to government balance sheets.<\/p>\n
\u201cGovernment spending jumped an annualized 6% in Q4, led by a surge in spending on defence,\u201d the report said, even as headline GDP contracted on inventory drawdowns.<\/p>\n
Another passage captured the authors\u2019 policy bias<\/a>: \u201cWe continue to view government spending as a better policy lever to address the current fragmented economic backdrop than blanket interest rate cuts.\u201d<\/p>\n
At the same time, after the Bank\u2019s late\u20112025 cut,\u00a0economists warned that cheaper money alone is unlikely to reignite demand<\/a> in the country\u2019s largest housing markets, describing the impact of rate moves as uneven and dependent on local fundamentals.<\/p>\n
\n
<\/p>\n
\n
<\/p>\n
\n
<\/p>\n
\n
<\/p>\n
\n
<\/p>\n
\n
<\/p>\n
\n
<\/p>\n
\n
<\/p>\n
\n
<\/p>\n