12 hours Ago By Gigi Suhanic
Some might think Canada has sidestepped a widely predicted after it dodged Donald Trump’s on Wednesday, but economists are still warning an economic contraction this year remains in the cards. Economists had been calling for Canada to fall into a recession in the second quarter prior to Trump’s announcement of tariffs ranging from 10 per cent to 49 per cent against countries around the world, but Canada and Mexico are still affected by a previous 25 per cent levy on many goods exported to the United States unless they are compliant with the (CUSMA). An economic contraction in the second quarter of 2025 is fast becoming a reality.
He said Canada’s economy will land in a hole more “indirectly,” with growth in Canada likely shrinking as worldwide tariffs apply “an important negative shock to the global economy.” That will impair growth, curb demand and reduce prices, especially for commodities, leaving resource-exporting provinces such as British Columbia, Alberta and Saskatchewan particularly exposed. Furthermore, if the U.
S. falls into a recession, that will spell bad news for Canada’s economy since it is highly dependent on demand from its neighbour. Calls for a recession in the U.
S. vary. Capital Economics Ltd.
places the chances at 30 per cent, with risks tilted to the downside, while JPMorgan Chase & Co. puts the odds at 60 per cent. Economists at , who had previously forecasted U.
S. growth of 1.5 per cent to two per cent for 2025, are now projecting “the estimated shock from tariffs would tip that to zero growth if not a contraction.
” The pain doesn’t end there. Canada is still shouldering 25 per cent tariffs on steel, aluminum and automobiles (minus the value of American-made components) and 10 per cent tariffs on non-CUSMA-compliant energy exports and potash. Trump could also impose tariffs on other products such as , and pharmaceuticals.
He suggested that if business confidence erodes, companies could opt not to delay making new investments or ultimately decide against upgrading their aging operations and move instead to the U.S. The tariff chaos is already taking its toll.
The Conference Board of Canada’s consumer confidence index fell to a near-record low in February and the Business Barometer fell to its lowest level ever in February. It slightly rebounded in March, but that was before Trump’s latest tariff bombshell. also has a gloomy economic outlook for Canada.
“Unless the U.S. administration reverses course, the Canadian economy remains on track for a noticeable deceleration throughout the remainder of 2025,” it said in a note.
But Capital Economics has backed away from their call for a recession in Canada. “While we will revise our forecasts to assume a recession is avoided, the outlook remains gloomy,” its economists said in a note on Thursday. “Consumer and business confidence has plunged and is unlikely to recover overnight simply because tariffs are, for now, relatively low.
The larger 25 per cent vehicle tariffs will be hugely disruptive for that sector, particularly given the threat to eventually include vehicle parts.” Canada’s exports plunged by 5.5 per cent in February, reversing course after rising almost 16 per cent between November 2024 and January 2025 as the United States’ tariff agenda started to turn global trading flows on their head.
The hit to exports means that Canada’s trade balance went from a surplus in January of $3.1 billion to a deficit of $1.5 billion in February, Statistics Canada said.
“The strong volatility in recent months occurred amid threats by the United States to impose tariffs on Canadian goods,” the data agency said Thursday. Exports fell in 10 of 11 categories. Exports to the U.
S. declined 3.6 per cent in February, and exports to other countries fell 12.
4 per cent. Economists had expected Canada to post a trade surplus of $3.5 billion.
“Looking ahead, although USMCA (United-States-Mexico-Canada Agreement) goods were exempt from tariffs in March, U.S. businesses appear to have accumulated enough inventory in prior months, and exports will remain under pressure as a result,” Katherine Judge, an economist at CIBC Capital Markets said in a note.
“Export demand will also be dented for autos, steel/aluminum, and lumber, which are subject to previously announced tariffs, despite Canada escaping the reciprocal tariffs,” she said. If you don’t prepare your own tax return each year, you’re missing out on what’s possibly the best education you can get about our Canadian tax system. Each week during tax season, Jamie Golombek gets dozens of emails from readers asking a variety of questions.
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