Canada Braces for Deep Recession Amid Global Trade Uncertainty
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Canada is poised to enter a deeper recession than previously anticipated, despite the easing of some U.S. tariffs. Oxford Economics has revised its GDP forecast, projecting a modest 0.7% growth in 2025 and a 0.2% contraction in 2026. This downturn is attributed to rising unemployment—estimated at 200,000 job losses in late 2025—and declining consumer spending, particularly in the housing sector. The recession is further exacerbated by weakened global demand resulting from higher U.S. tariffs on other countries, which indirectly impact Canada's export-driven economy.
Although the tariffs imposed on Canada are less severe than initially feared, the broader global trade environment remains unstable. Canada has implemented counter-tariffs affecting approximately $95 billion in U.S. imports, slightly less than the $155 billion previously anticipated. Nevertheless, the ongoing global trade tensions, including disputes with countries like China, have created significant uncertainty. This uncertainty is deterring private investment and could deepen Canada's recession, as businesses hesitate to commit resources amid unpredictable trade policies.
The Bank of Canada faces challenges in navigating this complex economic landscape. While the end of the consumer carbon tax and lower oil prices are expected to bring the Consumer Price Index (CPI) down to the 2% target in April, the introduction of counter-tariffs and supply chain disruptions may push inflation back up to 3% by the end of 2025. This anticipated inflation surge is expected to be temporary, assuming that broad tariffs do not persist. However, the central bank must balance these inflationary pressures with the need to support economic growth during a period of heightened global trade uncertainty.
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