Canada’s economy faces recession amid rising tariffs

Saturday 22 March 2025 - 14:30

By: Dakir Madiha

Canada’s economy faces recession amid rising tariffs

Canada's economy is poised to enter a recession this summer due to tariffs imposed by the United States, according to a recent report from the Desjardins financial services group.

Economists at Desjardins warned that the cumulative impact of these tariffs could trigger a recession as early as the second quarter. While Canada began 2025 on a relatively strong footing, it is expected to succumb to declining trade, investment, job creation, and consumer spending, driven by the new American trade policy.

The report noted that pre-existing challenges, such as a rapid slowdown in population growth and an impending increase in mortgage renewals at higher interest rates, will exacerbate this situation.

Moreover, retaliatory tariffs imposed by Canada will further deepen the economic contraction while pushing inflation rates higher, the report indicated.

Quebec is likely to feel the brunt of these tariffs more than other regions in 2025, as the province produces a larger share of goods subject to the 25% U.S. tariffs.

Tiff Macklem, Governor of the Bank of Canada, warned that potential tariffs from the United States could adversely affect critical sectors of the Canadian economy. "Clearly, higher tariffs mean reduced demand, slower growth, and increased inflation," Macklem stated.

According to Statistics Canada, the Consumer Price Index (CPI) rose by 2.6% year-over-year in February, following a 1.9% increase in January. The central bank had lowered its key interest rate by 25 basis points to 2.75% the previous week.