As the likelihood of a global economic downturn increases, Canada is expected to face challenges.
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Economists have revised their growth forecasts for the Canadian economy, now predicting an increase of 1.2% this year and 1.1% next year, a significant decline from the prior projections of 1.7% and 1.6% made a month earlier.
Amid rising recession risks linked to the U.S.-led trade war, many economists anticipate that the Bank of Canada (BoC) will enact at least two more interest rate cuts this year. However, a majority believe the central bank will maintain its current rates in its upcoming meeting. President Donald Trump's unexpected announcement last week to temporarily suspend certain tariffs for 90 days—excluding those on China—has done little to lessen concerns about Canada's economic outlook, as existing tariffs on vehicles, steel, and aluminum still apply. The unpredictability of U.S. trade policies, particularly in light of the escalating tensions with China, has heightened the risk of a global economic decline, which may impact Canada severely since approximately 80% of its exports are directed to the U.S.
According to a Reuters poll conducted from April 7 to 11, amid ongoing tariff uncertainties, economists have lowered their growth expectations for Canada to 1.2% in 2023 and 1.1% in 2024, down from earlier predictions of 1.7% and 1.6%. A few economists even foresee a recession this year. Andrew Kelvin, head of Canadian and global rates strategy at TD Securities, commented, "We anticipate that the BoC will hold its rate at 2.75% in April as it seeks more clarity regarding the impact of tariffs before considering further cuts."
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He noted, "Current trade policies are poised to reduce Canadian growth by about one percentage point. As a slowdown becomes evident, we expect the BoC to resume rate easing." The trade conflict between the U.S. and China, with tariffs reaching up to 145%, is expected to drive global prices higher, a phenomenon from which Canada will not be exempt. Over 60% of economists surveyed, 18 out of 29, predict that the Bank of Canada will maintain its overnight rate at 2.75% during the April 16 meeting, while 11 expect a reduction of 25 basis points. Meanwhile, more than half of the economists surveyed, 15 out of 29, predict two further rate cuts by the end of the third quarter, potentially lowering the rate to 2.25%, which falls within the BoC's neutral rate range of 2.25% to 3.25%. Uncertainty surrounding trade is adversely affecting both business and consumer confidence, according to the Bank of Canada. Carney has warned of "difficult times ahead," suggesting that the likelihood of a U.S. recession is increasing. The labour market has shown recent signs of weakness, and deteriorating business and consumer sentiment has raised alarms—nearly all economists surveyed indicated that the risk of a recession this year is high.
Last month, the Bank of Canada cut its benchmark rate for the seventh consecutive time to 2.75%, contributing to a total reduction of 225 basis points since early June. However, the recent spike in inflation, hitting an eight-month high of 2.6% in February—well above the Bank's target range of 1% to 3%—places the central bank in a challenging position.
All 16 economists surveyed agreed that U.S. tariffs have had a negative impact on business sentiment, with over 60% describing the impact as "very negative." Inflation is expected to average 2.4% in 2025 and 2.1% in 2026, an adjustment from previous predictions of 2.2% and 2.1% made in March.
Edited by BBN
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