Canada now knows who will lead the country as it confronts this nation-defining economic moment, but uncertainty is still the word of the year.
“We are going to build baby, build,” said Prime Minister Mark Carney in his late-night victory speech after the Liberal party won, four seats short of a majority.
“We will need to do things thought impossible, faster than expected.”
While Carney struck an optimistic and confident tone, economists say steering a minority government will likely mean more distractions, more spending, and more uncertainty as he takes on the ambitious task of tackling not only the immediate challenge of U.S. tariffs, but also long-simmering issues like productivity, trade diversification, and a Canadian economy that often aims too small.
“The fact that we have a minority government is not the best result, given the somewhat of an emergency economic situation that Canada is facing,” said Michael Dobner, PwC Canada’s national leader of economics and policy practice.
Carney, along with the Conservatives, was right in emphasizing the importance of making regulations work better and building the infrastructure to help business grow, Dobner said. But efforts to streamline rules and accelerate project approvals could clash with those the government will presumably have to rely on to help push its agenda, he added.
“I’m concerned that with the NDP having the balance of power, it will be very attuned to those voices that for sure will come, and that will slow down that process that needs to move very quickly if we want to be able to become, I would say, more self-sufficient.”
Along with building infrastructure, Carney has also emphasized the need to diversify trade. But Dobner said the crucial part to succeed in that will be to create the intellectual property and manufacturing heft needed for Canada to sell its own products.
“Canada has currently more free trade agreements than any of the G7,” said Dobner.
“The issue is not having free trade agreements. The issue is whether we have something to sell to the world.”
Convincing businesses to invest in research, machinery and everything required to boost productivity and product offerings will also face the challenge of the Canadian and global economic slowdown being brought about by U.S. President Donald Trump’s tariffs.
Economic data out this past week showed the U.S. economy shrank 0.3 per cent in the first quarter, while Canada’s pulled back by 0.2 per cent in February.
While there’s a lot that went into those retreats, including higher imports and weather challenges, the numbers confirm a slowing of momentum, said Dawn Desjardins, chief economist at Deloitte Canada.
“The key thing here is just the sense that everyone is extremely nervous,” she said.
“Consumers are not going to be spending on big ticket items … Businesses are saying, ‘Hey, the lay of this land is very uncertain for me. I don’t know how my sales projections are going to be, I’m probably not going to be putting money to work in the immediate term.’”
The hesitancy could lead Canada’s GDP to shrink 1.1 per cent in the second quarter and 0.9 per cent in the third quarter, while unemployment could hit 7.5 per cent, according to an outlook from Deloitte released last week.
An economic slowdown in the U.S. will also mean lower demand for exports, while the housing market in Canada was already slumping, leaving few places to look for optimism, said Desjardins.
“It’s really tough sledding in the immediate term.”
Carney’s big stimulus spending plans, totalling $129 billion in new commitments over four years, is aiming to counter those pressures.
Canada has some fiscal room to increase spending, but the country’s gross debt is creeping up so it’s important the money is targeted and well thought-out, said Desjardins.
“It has to be investments for the future,” she said.
The Liberal plan is heavily focused on building, including in defence, housing and trade infrastructure such as ports and highways that could help spur more private investment. Overall, the government is hoping to leverage $150 billion in public funds to mobilize $500 billion in investment over five years.
“The plan on paper should provide a boost to longer-term growth,” said Rebekah Young, head of resilience economics at Scotiabank, in a note.
But like others, she cautioned about the challenges in seeing the plans come to fruition because of a range of challenges, most notably that minority government.
“It would be brash to pencil in full economic effects of the platform,” said Young.
“Even deft alliance-building would still warrant caution. Policies are yet to be enacted, infrastructure-related projects are notoriously slow within Canada’s complex multi-jurisdictional framework, and energy-related ones even more uncertain in a highly polarized environment.”
She said Carney has his work cut out for him as he takes on the weakening economy, headwinds from abroad, the limits of federal power and the need to motivative business to “go big” on Canada amid uncharted uncertainty.
“There is a reasonable risk of a rapid and disorderly deterioration.”
This report by The Canadian Press was first published May 4, 2025.
