Tariff Uncertainty to Slow Economic Growth

/EIN News/ -- OTTAWA, Ontario, March 31, 2025 (GLOBE NEWSWIRE) -- Despite finishing 2024 on a high note, the global tariff uncertainty has dampened the outlook for the Canadian economy this year, according to new research from The Conference Board of Canada. Real GDP is forecast to grow 0.9 per cent in 2025, followed by 1.9 per cent expansion in 2026.

“Weak consumer confidence is encouraging precautionary savings among households, something we see only gradually recovering after the trade dispute with the U.S. is resolved, but businesses could remain cautious for a while,” stated Cory Renner, Associate Director, Economic Forecasting at The Conference Board of Canada. “The resource sector will be a bright spot for Canada, as the United States will continue to need Canada’s energy products, but manufacturing will feel the impacts.”

Canada’s economy will see short term pain in the second quarter, assuming tariffs from the U.S. and retaliatory tariffs from other countries, including China, Mexico, and the European Union, remain in place through the spring. The Conference Board of Canada forecasts 160,000 jobs will be lost, with nearly half of those coming in the manufacturing sector under its tariff assumptions. Real exports will fall by almost one-third, with motor vehicle and parts exports dropping by over 50 per cent, stifling business investment as many companies cut production, while delaying or cancelling investment plans.

The economy will turn the corner in the third quarter, according to The Conference Board of Canada, as a three-month duration of widespread tariffs would be short enough to allow a swift economic recovery. Fiscal measures targeted toward consumers and businesses will provide shelter to incomes and keep many businesses afloat during the steep downturn in the second quarter, enabling household spending and hiring to pick up shortly after.

The anticipated trade war is already impacting Canada’s labour market, with heightened uncertainty stalling job growth in February. There will be a swift recovery, assuming the tariffs are only in place for three months, however it will not be evenly recognized across all industries. The manufacturing sector is likely to face prolonged challenges due to lingering economic uncertainty. Concerns about potential future tariffs and weakened business confidence may prompt some companies to delay expansions and hiring plans well beyond 2025.

Canadians’ appetite for spending has soured as consumers are bracing themselves for the tariff impacts. The federal GST holiday helped keep headline consumer price index growth down artificially between December and February. Federal and provincial retaliatory measures spurred by U.S. tariff actions are also adding upward pressure to inflation. At the same time, the push to “Buy Canadian” will encourage consumers to substitute away from U.S. imports.

Uncertainty in the oil sector has customarily stemmed from factors such as stricter environmental regulations and a lack of major pipeline projects on the horizon. However, the Trump administration’s tariff regime has added a new layer of instability, affecting everything from production to pricing. While the near-term oil outlook has dimmed, natural gas prospects are strengthening. A cold start to the year boosted consumption and prices, driving inventories below five-year averages. With global LNG demand rising, LNG Canada remains on track for first shipments by mid-2025, targeting Asian markets.

Uncertainty surrounding U.S. tariffs and Canada’s retaliation to them are dominating the international trade outlook in the immediate term. Although The Conference Board of Canada assumes most protectionist measures will last for only three months, the damage to some export segments, particularly in manufacturing, will be long-lasting. All in all, Canada’s exports of goods and services are forecast to contract by 0.7 per cent this year before rebounding with 3.5 per cent growth in 2026. Despite the headwinds, the import sector is still expected to record positive, albeit tepid, growth this year. 

Recession fears laid to rest last year have arisen again as the country braces for President Trump’s dangerously protectionist policy changes. Tariffs, both threatened and imposed by the Trump administration have incited trade wars with America’s neighbours, partners, and allies, and would lead American consumers to pay higher prices.

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