The Bank of Canada (BoC) held its benchmark overnight interest rate steady at 2.25% at its December meeting, the last of 2025.

The BoC commented that interest rates are at an appropriate level to help support the Canadian economy amid trade tensions with the U.S. The Canadian labour market has shown signs of stabilizing in recent months, while inflation is contained. However, several upside risks to inflation linger.

There is no indication that the BoC will change monetary policy in the short term; however, Canada’s central bank did note that it is willing to change its policy position if its outlook for Canada’s economy shifts.

Statistics Canada released Canada’s trade balance after being delayed. Canada’s economy ran a trade surplus of $153 million in September, marking its first surplus since January. Exports rose by 6.3% to $64.2 billion. Imports declined, dropping by 4.1%.

Canada remains without a trade deal with the U.S., but trade diversification efforts by the Canadian government appear to be helping trade activity. Still, a lack of a trade deal with the U.S. creates uncertainty to the outlook. But Canada’s economy has demonstrated its relative strength in 2025 while facing U.S. tariffs.

The Fed lowered the target range of its federal funds rate by 25 basis points to 3.50–3.75% at its December meeting.

This marked the third consecutive rate cut from the Fed as it seeks to help support a slowing U.S. economy and struggling labour market.

Fed officials were divided on the rate cut. Three officials voted against cutting rates. The Fed is facing a challenging environment with a slowing labour market and economic activity but elevated inflationary pressures.

The Fed revised higher its outlook for U.S. economic growth next year to 2.3%. Meanwhile, the Fed projects the personal consumption expenditure price index (a gauge for inflation) to slow to 2.4% in 2026.

After three straight rate cuts, the Fed seems poised to carefully monitor economic conditions ahead of any upcoming interest rate decisions. December’s outlook showed Fed officials expecting one rate cut in 2026.

China’s trade surplus widened to US$111.7 billion in November, marking its highest surplus since June.

Exports from China increased by 5.9% year over year in November, rebounding from a 1.1% decline in the previous month. The increase came despite an almost 30% drop in exports to the U.S. Imports increased by 1.9% year over year in November.

Meanwhile, China’s annual inflation rate accelerated in November, increasing to 0.7%. This marked the highest rate of inflation in China since February 2024. The increase helped ease concerns of deflationary pressures.

China and the U.S. reached a one-year tariff truce in late October, which is expected to increase trade activity between the world’s two largest economies. Despite the agreement, U.S. tariffs on Chinese goods persist as part of the arrangement, but at lower levels than before.

China’s massive trade surplus over 2025 is drawing concern among other countries. French President Emmanuel Macron said the European Union may need to take measures to contend with the trade imbalance. Domestic demand has been relatively soft in China, making that country’s economy more reliant on foreign demand for goods.

Gross domestic product in the U.K. shrank by 0.1% in October, surprising economists who were expecting a 0.1% increase.

This marked the second straight contraction for the U.K. economy. The economy was hindered by declines in the retail and wholesale trade and computer programming industries.

Conversely, the goods-producing sector positively contributed to growth after falling by 2% in the previous month.

Industrial output increased by 1.1% in October, which was its largest increase since February 2025. The country’s manufacturing sector positively contributed to growth. Manufacturing production increased by 0.5%, driven by a rise in output for motor vehicles and machinery.

The U.K. economy is struggling for traction despite reaching a trade deal with the U.S. The economy has gone four consecutive months without growth. The economy is at risk of contracting over the fourth quarter. The Bank of England (BoE) makes one more interest rate decision this year. A rate cut may be on the table amid struggling economic activity and soft labour market conditions. However, the BoE is also contending with elevated inflationary pressures, which is tempering expectations for another rate cut.