Tariff War Likely to Plunge Canada Into Recession
(Bloomberg) — The Canadian economy is set to face the most severe shock since the Covid-19 pandemic and will probably sink into a recession if a tariff war persists, say top economists, with one calling it an “existential threat.”
President Donald Trump’s 25% tariffs on most goods the US buys from Canada and Prime Minister Justin Trudeau’s plan to retaliate on C$155 billion ($105 billion) worth of American-made products will trim real gross domestic product growth by 2 to 4 percentage points, according to economists’ estimates.
For an economy that was projected to grow at 1.8% in 2025, that would imply the first annual contraction in 16 years, outside of the pandemic. Consumer prices are likely to increase at a faster pace than the Bank of Canada’s 2% target, the unemployment rate is expected to rise and the Canadian dollar will weaken further.
Here’s what economists are saying:
Toronto-Dominion Bank
Chief Economist Beata Caranci and Senior Economist James Orlando expect a “sharp negative reaction” in North American equity markets and the loonie, which could drop as low as 65 US cents. The economy will probably go into recession if tariffs are sustained for five to six months. Any longer would deepen the contraction, and the unemployment rate may cross the 7% threshold. “It is premature to estimate the central bank response,” they said.
Bank of Montreal
Chief Economist Douglas Porter said US tariffs and Canada’s counter-levies may reduce Canadian GDP growth by about two percentage points, and “if the announced tariffs remain in place for one year, the economy would face the risk of a modest recession.” Based on the tariff news, he sees the Bank of Canada cutting its policy rate by a quarter point at each meeting until
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