TORONTO – With the Liberal Party poised to form a minority government following the election, economists say the focus now shifts toward Prime Minister Mark Carney’s spending promises amid the trade war with the United States.
The Liberals were set to hold 168 seats as votes continued being counted Tuesday afternoon, four short of a majority.
U.S. President Donald Trump loomed large over the campaign with his tariff threats and calls for Canada to become a U.S. state. Carney is expected to meet with Trump soon with plans to begin talks on a new trade and security pact quickly.
CIBC chief economist Avery Shenfeld said in a post-election note that budget deficits “look likely to head higher in the near term,” adding that is typical when Canada experiences an economic shock and governments lean on fiscal stimulus.
“Deficits are likely to somewhat exceed what the Liberals suggested during the campaign, while still tracking miles below U.S. federal deficits as a share of GDP,” he said.
Shenfeld said higher deficits could be in the cards especially with a minority Parliament looking likely, as votes continue being tallied.
“Gaining support in Parliament from either the NDP or the Bloc could mean allocating additional funds towards those parties’ priorities, including health care for the NDP, and items of importance for the Bloc (health care, other transfers, support for the metals sector),” he said.
The Liberals’ election platform pledged nearly $130 billion in new spending initiatives for priorities such as infrastructure building, defence spending, housing affordability, internal trade and economic development and resource project development, said TD chief economist Beata Caranci.
“Despite what seems like a scattershot of policies, the central theme is to pivot Canada towards domestic economic resilience, after relying on a deepening U.S. relationship for 80 years,” she said in a note.
“This suggests a more active role for government in both funding and building than in the past.”
While the Liberals and Conservatives had “significant alignment in platform objectives to improve Canadian competitiveness,” Caranci said it’s historically unusual for the two parties to vote together in Parliament.
That means the big question is “Who will partner with the new Liberal government to pass legislation?” she said, especially when it comes to potential trade-related bills influenced by renewed negotiations with the Trump administration.
“On the campaign trail, parties were united in the fight against American politics to weaken the Canadian economy … Now the rubber hits the road on collaboration and negotiations, with Liberals caught between the demands of the U.S. administration and those of domestic politics.”
Shenfeld said Liberal campaign promises that could affect the fiscal balance include dropping the consumer carbon tax while retaining a reformed version for large industrial emitters, eliminating GST on homes under $1 million for first-time purchasers, and cutting the tax rate by one percentage point for those in the lowest federal income tax bracket.
Canadian Federation of Independent Business president Dan Kelly said small business confidence is near record lows and the CFIB is forecasting an extremely difficult second quarter for the Canadian economy.
Still, he said there are reasons for optimism, as he praised the tone expressed by both Carney and Conservative Leader Pierre Poilievre on addressing the threat of U.S. tariffs.
“Last night’s election does provide at least a degree of political stability, albeit with a minority government,” said Kelly in an interview.
“I hope that there is continued focus on the economy. The previous 10 years, the economy has been probably issue No. 500 on the agenda of the federal government and it’s pretty clear that for all of the political parties, the economy is right at the top of the list right now.”
Kelly said the government must now turn its attention to reducing taxes, cutting red tape and providing economic certainty. He said small businesses are looking for measures that will incentivize investment and help them diversify their markets and suppliers.
Such measures should include directing money collected through counter-tariffs to small businesses, formally eliminating the consumer carbon tax via legislation and removing internal trade barriers across the provinces, said Kelly.
However, he stopped short of suggesting specific relief measures when it comes to allocating revenue from counter-tariffs toward struggling businesses.
“The tariffs are themselves so uncertain that I understand why it’s important that the government keep its powder dry for right now,” Kelly said.
Canadian Chamber of Commerce president and CEO Candace Laing said the Liberals’ victory comes at a time when the ongoing trade war with the U.S. “has disrupted the global trade order and broken the status quo.”
She said Canadians’ livelihoods “depend on how we navigate this crisis.”
“Canadians, worried about the price of everything from homes to energy to food, need stability and a clear plan for the future,” Laing said in a statement.
“We need Canada’s new prime minister, and all opposition parties, to put aside political differences and protect Canada’s economic security and resilience.”
In a letter addressed to Carney on Tuesday, the Business Council of Canada said the government’s focus in the coming months should include stabilizing Canada’s relationship with the U.S., while expediting the review and extension of the Canada-U.S.-Mexico Agreement.
The letter said Canada must also diversify its markets, energy exports and supply chains, as “overdependence on a single trading partner, as recent disruptions have shown, leaves our economy exposed to unnecessary risk.”
Meanwhile, the United Steelworkers union urged the government to prioritize workers across the country who “are looking for action to protect and create good union jobs, rebuild our industrial base and ensure fairness and security for working people.”
This report by The Canadian Press was first published April 29, 2025.
