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Canada Faces Modest Recession as US Tariff Uncertainty Lingers

Economists warn that policy uncertainty from President Trump's tariffs will squeeze exports, prompting two further Bank of Canada rate cuts to support growth.

The Lion 6 electric truck, is assembled at the Lion Electric Company assembly plant in Saint-Jerome, Que., Monday, Aug. 21 2023. THE CANADIAN PRESS/Christinne Muschi
Deloitte Canada expects the Canadian economy will hit a recession in 2025, but may avoid the worst-case outcome. Steel workers work at the ArcelorMittal Dofasco steel plant in Hamilton, Ont., on Wednesday, March 12, 2025. THE CANADIAN PRESS/Nathan Denette

Overview

  • Deloitte forecasts Canada will enter a modest recession in the second and third quarters of 2025 with real GDP growth of just 1.1% for the year.
  • Business and consumer confidence has plunged to its lowest level outside the pandemic as firms delay investment in the face of trade policy uncertainty.
  • Exports to the United States have fallen sharply, particularly for steel, aluminum and finished autos subject to steep tariffs.
  • Energy-exporting provinces such as Alberta, Saskatchewan and Newfoundland and Labrador are expected to drive growth while Ontario, British Columbia and Quebec lag.
  • Ottawa's ‘One Canadian Economy’ legislation and two additional quarter-point interest rate cuts by the Bank of Canada aim to bolster investment and cushion the slowdown.