Canadian Economy Faces Recession Due to U.S. Tariffs, Forecasts Show

OTTAWA — The Canadian economy is projected to enter a recession within the calendar year, largely attributed to the tariff policies implemented by U.S. President Donald Trump. According to a report from Export Development Canada (EDC), the nation’s economic growth is expected to slow to just 0.9 percent in 2025, with a slight increase to 1 percent in 2026. This forecast positions Canada behind the United States, which is anticipated to grow by 1.7 percent in 2025, and below the average growth for developed economies, estimated at 1.3 percent.

Global Trade Tensions Impacting Canada

The EDC report highlights that global trade tensions, particularly between Canada, the United States, and China, have created significant instability. In his quarterly analysis, EDC Chief Economist Stuart Bergman stated, “Trade tensions have destabilized the foundations for the global economy.” The issuance of hefty tariffs on a variety of Canadian exports, including steel, aluminum, and lumber, has directly contributed to rising unemployment and declining business investment in Canada.

Additionally, tariffs imposed by China on Canadian agricultural products such as canola, pork, and seafood have further complicated trade relations. The EDC noted that early surges in Canadian exports were primarily due to companies stockpiling supplies ahead of these tariffs, but these gains have not translated into sustained economic growth.

Recent data from Statistics Canada revealed that the national unemployment rate remained stable at 7.1 percent in September 2023, following a slight rise in August. This marks a 0.5 percentage point increase in the unemployment rate over the course of the year, reaching its highest level in more than four years. The decline in crude oil prices by approximately 15 percent over the last 12 months has further exacerbated the economic challenges facing Canada.

Long-term Economic Outlook Remains Bleak

The EDC’s forecast indicates that structural issues, such as slowing population growth and high consumer debt, will continue to hinder the Canadian economy in the medium term. Benjamin Tal, Deputy Chief Economist at CIBC World Markets, echoed these concerns, stating that the Canadian economy will remain “very vulnerable” over the next three to six months. Tal anticipates that the Bank of Canada will respond by lowering interest rates by 25 basis points later this month, with another cut expected before the end of the year.

Tal emphasized that the overall direction and core strength of the economy are more critical than whether Canada experiences a technical recession, defined as two consecutive quarters of negative growth. He expressed skepticism about significant economic improvement before the second half of 2024, remarking, “The economy is not strong by any sense of the imagination.”

The EDC’s bleak projections place additional pressure on Prime Minister Mark Carney to secure a trade agreement with the United States. This could involve broad or sector-specific deals that address steel, automotive, aluminum, and softwood lumber tariffs. There is also growing urgency for the government to implement policies that stimulate short-term economic growth.

Since taking office in April, Carney’s administration has mainly focused on addressing long-term structural economic issues. Initiatives have included upgrading infrastructure, reducing income taxes, and investing in defense. Public opinion appears to support these efforts, but Canadians are increasingly eager to see more immediate results from the government’s policies.

Further measures to bolster the economy are anticipated in the upcoming federal budget, scheduled for early November. However, Tal cautioned that finding short-term solutions that also support long-term growth will pose a significant challenge for the government.

This latest forecast from the EDC aligns with predictions from other economic analysts, including TD Economics, Deloitte Canada, and Royal Bank. While some forecasts suggest a slowdown, not all predict an outright recession, highlighting the complexities of the current economic climate in Canada.