Canada’s economic outlook is mixed, as the country deals with persistently low levels of business investment and falling productivity. The perfect storm has provoked serious alarm from many economists who cautioned that these compounding challenges threatened to arrest economic growth. Our trade war, strangely enough, just got a lot hotter. Recent actions and policy direction taken by our primary trading partner, the United States, have further highlighted Canada’s economic vulnerabilities. Analysts say a peace dividend in terms of restored certainty in trade relations might be key to restoring business confidence and sparking renewed investment.
As Dawn Desjardins, vice-president and large-economy leader at Deloitte Canada, recently said, the effects of changing trade dynamics have been felt across the Canadian economy. She notes that the trade war has forced this question atop TAA’s agenda. That makes it all the more important to address these economic problems head on. Desjardins sees great opportunity for Canada to shift into a higher gear economically.
“Consumer and business confidence has taken a hit as Canadians wait for an outcome from trade negotiations with the United States,” she states. She remains optimistic about the future trajectory of Canada’s economy, stating, “This signals to business that Canada is now ready to move to a stronger playing field.”
Economic Forecasts and Employment Concerns
Deloitte Canada just predicted a shallow recession in the second and third quarters of this year. This coming downturn, unprecedented in length and depth, may lead to massive job and contract losses, among other lives’ disruptions. On Friday, economists predicted that the unemployment rate would rise to 7.3 percent by this fall. This is up from the seven percent rate reported in May. The nationwide slowdown, especially within the important manufacturing sector, is likely to lead to wider vulnerabilities in the labor market over the next several months.
“While Canada’s economic path forward remains challenging, it appears considerably less treacherous than it did just a few months ago — a narrative that has yet to permeate the Canadian psyche,” according to a report from RBC. That’s the general feeling, anyway—the uncertainties still loom large but signs of recovery seem possible as more stars align with incoming data.
Desjardins cautions that to see a substantive economic up-swing will require longer-term thinking and investment. She points out that reducing interprovincial trade barriers is no easy feat. National infrastructure improvements, of course, are just as intertwined, and in both cases it can take years to provide substantial returns. “Adopting the ‘One Canadian Economy’ framework is not a magic wand that changes the landscape,” she explains.
Trade Relations and Investment Confidence
The continuous unpredictability of U.S. market conditions creates opportunities for Canada. U.S. President Donald Trump made headlines last week when he announced plans to double steel and aluminum tariffs. Consequently, Canadian sectors are about to feel some of the most profound effects. Analysts caution that further reciprocal tariffs from Canada would deepen the rivalry and hurt industry profitability in general.
Despite these challenges, there is an opportunity for Canada to meet rapidly expanding global demand for critical minerals. This evolving landscape may allow Canadian businesses to pivot and adapt to new markets, provided they receive clarity on trade regulations.
Desjardins stresses that as soon as businesses have some certainty around trade issues, they’ll probably get their confidence back and start investing again. “We do think the economy really is going to be considerably slower,” she admits, underscoring the need for stability in trade relationships to foster a conducive environment for growth.
Consumer Spending and Economic Resilience
Although uncertainties loom in the wake of the ongoing trade negotiations, consumer expenditures continue to be strong. Overall, RBC says that despite a lot of bad news, consumers are still buying things, showing how resilient the overall Canadian economy might be. Though a possible peak before a slowdown, this consumer confidence is likely providing some protection against declines in business investment and jobless claims.
As businesses and consumers continue to find their way through these unprecedented times, there seems to be a slightly more positive – though cautious – outlook setting in. By adopting clearer trade policies and lowering trade barriers, Canada will have the opportunity to prosper. This holistic approach will position our country to mitigate the worst effects of outside forces.
