According to economists, Canada has entered a period of economic decline.
Canada's economy may be on the brink of a recession, according to economists who are monitoring a surge in unemployment and a decline in exports due to the trade war initiated by the United States.
Economists polled by Bloomberg anticipate a double-dip contraction in GDP—the technical definition of a recession—with a 1% decline in the second quarter and a marginal 0.1% decrease in the third quarter (on an annualized basis). They project a drop in exports of 7.4% for the current quarter. However, it's worth noting that early-year deliveries by American importers, spurred by threats from President Donald Trump, may have temporarily boosted Canadian exports during the first quarter. The economy is expected to rebound later in the year.
The trade war with its primary trading partner is having a detrimental impact on employment and household consumption in Canada. Economists predict that unemployment will rise to 7.2% in the second half of the year, although figures should ease slightly by 2026.
Despite the anticipated rise in inflation, which is projected to reach 2.1% in the third quarter and 2.2% in the fourth, the Bank of Canada is less likely to reduce interest rates at its June meeting, as suggested by Bloomberg's World Interest Rate Probability. "The more we can reduce uncertainty, the more we can look to the future in our monetary policy decisions," Bank of Canada Governor Tiff Macklem stated on May 20.
Companies and consumers are holding off on making significant decisions due to the uncertainty surrounding relations with the United States, which has led to a marked slowdown in the housing market, with falling prices and sales. Economists estimate that housing starts could see a decline in the second half of 2025 compared to the second quarter.
Macklem emphasized, "I know that Canada is eager to negotiate with the United States to iron out our differences and reach an agreement." If there is clarity in the situation, growth can be resumed. If the situation worsens, it's evident that the economic outlook will deteriorate further.
Canadian Prime Minister Mark Carney is set to meet with President Trump again soon, as the American leader will be attending the G7 summit in Alberta, Canada, in June. However, Carney warned that the extended era of deep integration between the two countries is over.
Economists anticipate GDP growth of 1.2% in 2025 and 1% in 2026. These projections align with the previous Bloomberg survey, which was conducted among 34 economists from May 16 to 21.
Sources:[1] Deloitte's Outlook: https://www2.deloitte.com/content/dam/Deloitte/ca/Documents/about-deloitte/ca-outlook-q1-2023.pdf[2] Bank of Canada's Market Participants Survey: https://www.bankofcanada.ca/rates/find-governors-rate-speeches-and-papers/2021/mps-surveys/[3] Ontario Ministry of Finance: https://www.ontario.ca/page/budget-2021-3[4] National Bank of Canada: https://www.nbc.ca/en/
- The trade war between Canada and the United States is causing a slowdown in various sectors, particularly the business industry and politics, with economists forecasting a rise in unemployment and a decline in housing market activity.
- In the financial realm, economists predict a potential recession for Canada, with a double-dip contraction in GDP and a drop in exports, despite temporary boosts from early-year deliveries by American importers.
- Despite the anticipated rise in inflation, the Bank of Canada may not reduce interest rates, as there's an emphasis on reducing uncertainty, which could impact general-news and the political climate, particularly in relation to the ongoing trade disagreements between Canada and the United States.
