The Bank of Canada's growing list of worries

For months, the Bank of Canada has been trying to thread a needle: slow the economy just enough to get inflation back under control but not so much that it causes a recession.

In a report released this week, the central bank offered up plenty of evidence that its strategy is working. Inflation has eased, economic growth has resumed all while wages are recovering.

But the bank also has a list of things that could quickly derail that progress — from mortgage renewals to population dynamics to conflicts abroad or wildfires in Canada.

Canadian households have been clobbered these past two years by rising prices and increased borrowing costs. It's easy to look at easing inflation and think better days lie ahead. And most forecasts show the economy should improve over the rest of this year.

But real risks remain — that the bank will be watching for as it decides whether to cut rates again at the July announcement.

Atop the bank's list of risks to economic growth is a tsunami of mortgage renewals about to crash into the economy.

"The large number of households renewing mortgages at higher rates and with higher payments in 2025 could curb spending and dampen economic activity and inflation more than expected," wrote the Bank of Canada in its summary of deliberations, which is meant to give Canadians more insight into its monetary policy decisions.

At the same time, the central bank is worried that interest rate cuts could overheat the housing market. Economists have warned that a slowing real estate market has led to pent up demand across the country.

Another key concern is how the economy adjusts to population growth.

New figures released this week show Canada's population surpassed 41 million people in the first quarter of 2024,  less than a year after the population hit 40 million last summer. Almost all the increase was from international migration, according to Statistics Canada.

All those new Canadians add to economic growth. They buy groceries and cars home furnishings.

But even with that boost, GDP growth spent months hovering around zero per cent. If you calculate GDP on a per capita basis, the portrait of the economy is decidedly worse.

The federal government has said it will slow the number of non-permanent residents it allows to enter the country. That, inevitably, will change one of the driving forces behind what little economic growth Canada has been able to eke out. 

"The timing and impact of government plans to unwind the rapid growth in non-permanent residents could affect the forecast for inflation and growth," wrote the bank.