Canada’s economic outlook has taken a hit as economists trim their growth forecasts, citing potential trade disruptions due to looming U.S. tariffs. The latest Bloomberg survey of economists predicts a slower expansion for Canada, revising the 2025 growth estimate down to 1.6% from the previously expected 1.8%. For 2026, growth is now projected at 1.7%, a decline from the earlier 1.9% forecast.
Trade Tensions Weigh on Investment
A major factor behind this downward revision is a weakening business investment climate. Economists now expect business investment to rise only 1.7% this year, which is 0.6 percentage points lower than the last forecast. Additionally, both imports and exports are anticipated to grow at a slower pace than previously projected.
Uncertainty over trade relations is a key concern. U.S. President Donald Trump has threatened steep tariffs on Canadian goods, initially signing an order on February 1 imposing 25% duties on most Canadian imports and 10% tariffs on energy products, including oil. Although this action has been temporarily paused until early March, businesses remain on edge.
Impact on Business Confidence and Monetary Policy
The Bank of Canada (BoC) has acknowledged the economic risks posed by these trade uncertainties. During its January 29 policy meeting, officials highlighted the negative impact on business confidence and investment plans. In response, the central bank cut interest rates by 25 basis points, bringing the benchmark rate down to 3% to support economic activity.
Looking ahead, analysts remain divided on whether the BoC will implement another rate cut at its next meeting on March 12. While some economists anticipate another 0.25% reduction, traders in overnight swap markets currently assign a 25% probability to such a move. The central bank’s terminal rate for this cycle is now expected to reach 2.5% by June, one meeting earlier than previously forecast.
Canada’s Economic Standing Among G7 Nations
Despite these headwinds, Canada’s economy remains resilient compared to its global peers. The Bank of Canada’s latest monetary policy report revised growth forecasts downward, now predicting a 1.8% expansion in both 2025 and 2026, compared to previous estimates of 2.1% and 2.3%, respectively. However, Canada is still expected to post the second-strongest growth rate among G7 countries, trailing only the United States.
Market Reactions and Future Outlook
Financial markets are closely monitoring developments in trade policy and monetary decisions. Investors and businesses are adjusting their strategies amid the ongoing uncertainty. If trade tensions ease, economic growth could see an upward revision, but for now, the risks remain significant.
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