Canada’s economy is poised for one of its largest shocks since the Covid-19 pandemic, with leading economists warning that a prolonged tariff war could lead to a recession. President Donald Trump’s 25% tariffs on most imports from Canada, coupled with Prime Minister Justin Trudeau’s planned retaliation on C$155 billion ($105 billion) worth of American products, threaten to cut real GDP growth by 2 to 4 percentage points.
For an economy that was expected to grow by 1.8% in 2025, this could mark the first annual contraction in 16 years, outside of the pandemic years. Economists also forecast rising consumer prices, an increase in unemployment, and a weakened Canadian dollar.
Here are insights from various economists:
Toronto-Dominion Bank
Chief Economist Beata Caranci and Senior Economist James Orlando predict a “sharp negative reaction” in North American equity markets and a potential drop in the loonie to 65 US cents if tariffs persist for five to six months. They warned that prolonged tariffs could push the unemployment rate above 7%.
Bank of Montreal
Chief Economist Douglas Porter indicated that the tariffs might reduce Canadian GDP growth by about two percentage points, with a modest recession looming if the tariffs remain in place for a year. Based on these developments, he anticipates the Bank of Canada will cut its policy rate at each meeting until October, stabilizing at 1.5%.
Canadian Imperial Bank of Commerce
Chief Economist Avery Shenfeld described a sustained two-way trade war as a “recessionary shock for Canada.” Though a weaker loonie might help recovery, the loss from trade would hinder real output, even post-recovery.
Royal Bank of Canada
Chief Economist Frances Donald and Assistant Chief Economist Nathan Janzen aligned their estimates with the Bank of Canada, noting that a 25% rise in tariffs could reduce Canadian GDP by 3.4 to 4.2 percentage points. They highlighted that Canada is already facing challenges, struggling to recover from previous interest rate shocks.
Capital Economics
Chief North American Economist Paul Ashworth labeled the 25% tariffs as an “existential threat” to Canada, given that exports to the US account for nearly one-fifth of the nation’s GDP. He estimates a potential GDP decline of 2.5% to 3% and suggests the Bank of Canada could cut interest rates by at least 50 basis points.
Corpay
Chief Market Strategist Karl Schamotta warned that the loonie and peso could drop by more than 2% to 3% when trading begins, reflecting the severe implications of a prolonged trade war on both economies.
RSM Canada
Economist Tu Nguyen projected that the tariff conflict could contract the Canadian economy by 2% this year, expecting headline inflation to rise to 2.7%. She foresees job losses across multiple industries as higher prices dampen demand, with certain goods like fruits and vegetables expected to see immediate price increases.
Independent Institute
Economic historian Phillip Magness noted that the burden of tariffs will ultimately fall on consumers in both countries, as costs are passed down or lead to shifts toward more expensive domestically produced substitutes.
As the tariff war escalates, the consequences for Canada’s economy and consumers are becoming increasingly concerning, signaling a tumultuous economic outlook ahead.
Credit: Hindustan Times