The Canadian economy is “walking on a tightrope” and is likely to experience an economic downturn later in the year, an economic outlook by Deloitte Canada is predicting.
“Business confidence is cooling. Investments are stalling. Canada’s economy is walking on a tightrope, but this may be our moment to build a more resilient, productive, and diversified future,” Deloitte Canada said in the spring edition of its economic outlook.
According to the report, Canada’s economy is expected to experience a “modest downturn” over the second and third quarters of the year.
However, strong growth at the end of 2024 will keep annual growth for that year in positive territory, the report said, forecasting a growth rate of 1.2 per cent.
The threat posed by U.S. President Donald Trump’s tariffs is the chief reason for Canada’s gloomy economic outlook.
“Five years ago, we found ourselves speaking about the unprecedented uncertainty as the COVID-19 pandemic began to unfold. While the challenge is different this time, there is no doubt that Canada is once again facing an extremely uncertain economic operating environment as U.S. tariff policies ripple through the economy,” said Dawn Desjardins, chief economist at Deloitte Canada.
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If the exemptions carved out under the Canada-U.S.-Mexico free trade deal (CUSMA) are removed, Deloitte says Canada’s GDP could be permanently lowered by three per cent by 2030.
“It is a real possibility that the CUSMA carve out is eliminated, resulting in Canadian products losing their preferential access to the important US market,” the report says.
While Canada’s export sector is expected to take the biggest hit from tariffs, imports will also be hit given the highly-integrated Canada-U.S. supply chain.
The report also warned of job losses in sectors that are most critically impacted by U.S. tariffs, such as automobile manufacturing and metal manufacturing.
Deloitte is forecasting the unemployment rate to push above seven per cent in 2025 but remain largely flat in 2026.
Reduced U.S. demand for Canadian goods could also lead to weakening incomes for Canadians.
It is also expecting inflation to remain over the Bank of Canada’s target range of two per cent but come back down to that target figure by next year.
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