Canadians are bracing for the impact of Trump's tariffs
The Canadian Federation of Independent Business (CFIB) forecasts a significant economic contraction in the second quarter of 2025, following modest growth in the first quarter.
In its latest economic forecast, the CFIB estimates Canada’s real gross domestic product (GDP) expanded at an annualised pace of 0.8% in the first quarter. The organisation anticipates a contraction of 5.6% in the second quarter, citing persistent trade tensions, inflationary pressures and declining business confidence as contributing factors. The projection draws from CFIB’s most recent monthly business barometer data.
CFIB chief economist Simon Gaudreault noted that the raging trade war will likely drive up the costs of doing business and lead to inflation.
The trade conflict intensified earlier this year when the United States imposed additional tariffs on a range of Canadian goods, including steel and aluminum products and auto imports. The Government of Canada responded with reciprocal tariffs targeting US exports such as electric vehicles, fruits and vegetables, and electronics.
The economic forecast has been complicated by monetary policy constraints. The Bank of Canada held its overnight lending rate at 2.75% in April, following a series of cuts from 5% since June 2024. While inflation has eased to 2.3%, core inflation measures remain near the upper end of the central bank’s 1% to 3% target band.
Bank Governor Tiff Macklem said he wants more information, referencing ongoing tariff threats from US trade policy under president Donald Trump. Bloomberg reported that the central bank left its estimate of the midpoint of the neutral rate of interest at 2.75%, where borrowing costs are theoretically neither stimulative nor restrictive.
Retail activity has also weakened. Statistics Canada’s estimate showed a 0.4% drop in national retail sales in February.
Labour market data released in April indicated that the national unemployment rate rose to 6.7% in March. Canada lost 33,000 jobs, marking the sharpest monthly job loss since early 2022.
The International Monetary Fund (IMF) recently revised its economic growth projection for Canada in 2025, lowering it to 1.4% from its earlier forecast of 2%.
What are your thoughts on the current projections for the Canadian economy? Share your insights in the comments below.
