Despite the imposition of tariffs in recent months, experts indicate that there are minimal signs of an economic collapse, although Canada’s economy is displaying vulnerabilities. TD Bank’s economist Marc Ercolao acknowledged the unexpected resilience of the economy amidst significant disruptions from the country’s primary trading partner. Initial forecasts had predicted a much weaker Canadian economy, but the current scenario is defying those projections, averting a worst-case outcome.
Bank of Canada governor Tiff Macklem recently commented on the economy’s ability to withstand U.S. tariffs, noting its resilience. However, the addition of 35% tariffs on Canadian goods by U.S. President Donald Trump has added to the existing economic challenges. Statistics Canada’s data for the second quarter reveals minor contractions in real gross domestic product (GDP) in April and May, with a slight rebound observed in June, potentially resulting in flat growth for the quarter overall.
Economic activity has been somewhat stagnant over the past six months, with sectors like manufacturing and transportation experiencing the most significant impact, while service industries remain relatively stable. To counter these challenges, the government has introduced support programs for workers affected by tariffs and plans to accelerate defense and infrastructure spending.
Despite uncertainties caused by tariffs, consumer spending continues to grow modestly, albeit restrained. The Bank of Canada has kept its policy interest rate steady at 2.75%, reflecting confidence in the economy’s resilience. Forecasts from BMO suggest a positive outlook for the third quarter, with expectations of avoiding a technical recession this year, supported by factors like personal tax cuts and increased domestic travel demand.
While some economists anticipate a tariff-induced recession, the Bank of Canada’s monetary policy report outlines scenarios where growth remains positive but slightly lower due to ongoing tariff implications. The economy is expected to continue growing, albeit on a diminished trajectory due to the inefficiencies introduced by tariffs.
Looking ahead, experts emphasize the need to adapt to mitigate negative impacts from tariffs. The fluctuating nature of U.S. trade policies has allowed businesses time to adjust, potentially lessening the adverse effects on the Canadian economy compared to earlier projections. Despite challenges, there are efforts to navigate the current trade landscape and safeguard the economy against potential disruptions.