Several economists have recently adopted a more positive outlook on the impact of the ongoing tariff disagreement between Canada and the United States on Canada’s economy. Despite the implications of the trade dispute, they contend that the most severe ramifications could be mitigated. This is not to dismiss the potential of economic downturn for Canada. Indeed, Deloitte Canada, in a recent report, anticipates a slight slump in Canada’s economy during the course of the fiscal year due to the business uncertainties and the effects of tariffs.
Deloitte Canada predicts that the economy could face a downturn in 2025, but maintains a hopeful stance that the most severe impacts can be avoided. Despite this, following an unexpected robust first quarter, which saw a rush for business orders ahead of looming tariffs, a decline in Canadian exports is already evident as of April. With this comes expectations of a broader weakness in the manufacturing sector of the labor market in the forthcoming months.
Furthermore, Deloitte Canada projects a rise in unemployment rates from May’s seven percent to 7.3 percent by the year’s end. However, the situation could potentially have been much worse had Canada not managed to secure tariff exemptions for CUSMA-compliant exports during early trade discussions with the United States.
The decision by U.S. President Donald Trump to increase tariffs on steel and aluminum by double to 50 percent brings yet another challenge. These sectors are particularly more vulnerable now, especially if reciprocal tariffs from Canada were to heighten following the end of the ongoing 30-day negotiation period.
With regards to regional impacts of the tariff disputes, Deloitte predicts varying outcomes. For parts of Eastern, Central Canada, and British Columbia, a muted economic growth is anticipated. On the contrary, areas such as the prairie provinces along with Newfoundland and Labrador could foresee a boost in their economic output, largely attributed to energy exports.
Despite ongoing concerns, Deloitte maintains that the current state of affairs, if preserved, represents a situation that is far from the worst possible outcome for Canada’s economy. Even with a predicted downturn for two quarters, Deloitte believes that Canada could still achieve a growth in real GDP of 1.1 percent within this year.
Looking ahead, Deloitte forecasts an acceleration of this figure to 1.6 percent in 2026. Furthermore, it is projected that the rate of unemployment would also return to a figure below seven percent in the early part of the upcoming year.
Both Deloitte and RBC express cautious optimism with respect to Canada’s potential economic prospects amidst the continuing trade tussle. They highlight that in the face of uncertainty, household spending continues and business investments are gradually resuming. It is suggested that economic recovery could be possible in the latter half of the year possibly supported by further interest rate reductions from the Bank of Canada.
These institutions drew attention to recent legislative strides by the federal government as contributing factors to safeguard the country from a more severe economic downturn. For instance, the passing of Bill C-5 by the House of Commons, aimed at diminishing interprovincial trade impediments and expediting projects, suggests an improvement in Canada’s business environment.
Deloitte and RBC are united in the outlook that addressing poor business investment and productivity should be a top priority. Reduction of trade barriers between provinces in the long term is seen as one way to foster investment and enhance productivity.
With global trade looking uncertain, there is an opportunity for Canada to meet the rising global demand for essential minerals needed in AI and defense products. While there is agreement that these changes won’t be immediate and certain regions may experience downturns during the transitional period, a positive message could provide a lift in business confidence.
According to Deloitte and RBC, implementing a strategy aligned with Ottawa’s ‘One Canadian Economy’ framework could play a significant role in fostering economic resilience. Such a strategy would facilitate economic growth by increasing the country’s capacity to handle shocks in an unstable global trade environment.
In summary, the Canada-US trade dispute, whilst challenging, could be navigated in a way that averts the most detrimental outcomes for Canada’s economy. This is what economists at Deloitte Canada foresee and their projections, should they pan out, will mean that while the journey may be rough, Canada manages to weather the storm.
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