This does not mean that the Canadian economy gets carried away. According to new forecasts published Wednesday by Deloitte Canada, a slight recession will strike the second and third quarters of the year, while the uncertainty and weakness caused by customs duties are beginning to be felt.
“We believe that the economy will really slow down considerably,” said Dawn Desjardins, chief economist at Deloitte Canada.
After a surprisingly solid first quarter, which saw many companies place their orders at full speed to get ahead of the imminent arrival of customs duties, Canadian exports were already showing signs of sharp drop in April.
The weakness of the labor market in the manufacturing sector is expected to increase in the coming months, said Deloitte Canada. The unemployment rate is expected to reach 7.3 % by the end of the year, compared to 7 % in May.
DESJARDINS, however, mentioned that this economic slowdown could have been much worse if Canada had not obtained pricing exemptions for exports in accordance with the Canada-US-Mexico Agreement (ACEUM) during the first negotiations with the United States.
The decision of US President Donald Trump to double customs duties on steel and aluminum at 50 % earlier this month means that these sectors are likely to be even harder, she added, in particular if Canada imposes additional reciprocal customs duties at the end of the 30-day negotiation period in July.
Deloitte said that certain regions of Eastern and Center of Canada, as well as British Columbia, will experience moderate growth this year due to the pricing conflict, while the Prairies and Newfound-and-Labrador provinces will see their production increase, mainly thanks to energy exports.
Overall, Ms. Desjardins stressed that the status quo, if he is maintained, does not represent the “worst scenario” for the Canadian economy that some could have feared a few months ago, when the customs duties were intensified.
Despite two negative quarters, Deloitte plans that Canada will display a real GDP increase of 1.1 % this year. This growth would accelerate to reach 1.6 % in 2026, growth far from being a shattering, but better than a prolonged economic slowdown.
Unemployment would also fall below 7 % at the start of next year, according to the report.
A trend observed elsewhere
Deloitte is not the only one to bring a little optimism to his forecasts.
The Royal Bank of Canada (RBC) published on June 13 a report which also emphasizes upward risks for Canada – an economic abbreviation for potential improvement – in a context of “dark” prospects for the trade war to date.
“Although Canada’s economic trajectory remains difficult, it seems considerably less perilous than just a few months ago, a discourse that has not yet permeated the Canadian spirit,” said the RBC report.
Consumer and companies’ confidence has been shaken, while Canadians are waiting for the outcome of trade negotiations with the United States. However, the RBC stressed that concrete data show that households continue to spend despite uncertainty.
Ms. Desjardins also believes that once companies have obtained a little more clarity on the commercial front – discussions seem productive so far, according to her – they will also have the necessary confidence to resume their investments.
It provides that this will promote an economic recovery from the second half, partially fueled by two additional rate drops of a quarter of the Bank of Canada in the coming months.
The RBC, on the other hand, considers that the economy is dynamic enough not to need new rate decreases this year.
The situation could change if cracks were starting to train in the economy, but the deputy chief economist of the RBC, Nathan Janzen, expects the central bank to maintain the status quo taking into account the “resilience” of the economy.
“The Bank of Canada still has the possibility of reacting by increasing its monetary support if the economy needs it,” he said.
Measures that help
The RBC and Deloitte point out that the recent measures taken by the federal government have made it possible to protect the Canadian economy against a more marked economic slowdown.
The House of Commons adopted Bill C-5 at the end of last week, a vast set of legislative measures aimed at reducing interprorcal trade barriers and accelerating the development of major projects.
According to Ms. Desjardins, this bill contributes to solving persistent reputation problems: Canadian industry is slow to evolve and gets bogged down in administrative heaviness before it can even start.
While economists have long insisted on the weakness of business investments and the decline in productivity in Canada, she said that the “jolt” of the trade war has finally “set this subject at the top of our priorities”.
“This tells businesses that Canada is now ready to adopt stricter game rules,” she said.
The RBC has agreed that “measures aimed at eliminating interprorcal trade barriers could bear fruit in the long term and help support investment and productivity growth”.
The uncertainty surrounding the American market in the context of world commercial upheavals also offers Canada, rich in resources, the opportunity to support the growing global demand for essential minerals necessary for artificial intelligence and defense products, according to the RBC.
According to Ms. Desjardins, he could flow for years before the measures taken today to eliminate interprorcal trade barriers and develop national infrastructure. Reorienting the supply chains takes time, and the manufacturing industries of certain provinces will still be affected during adjustment.
However, she argued that the signal is almost as important as the result when it comes to giving companies the trust necessary to invest.
The adoption of this framework of “single Canadian economy”, as Ottawa nicknamed it, “is not a magic wand that changes the situation,” said Desjardins.
“This strengthens the resilience of the economy and expands growth possibilities,” she said.
