Canada might be able to avoid a full-blown recession this year, experts surveyed by the Star predict, despite earlier fears that U.S. President Donald Trump’s trade war would devastate our economy.
Economists have adjusted their economic forecasts since the spring, when Trump announced — and later paused — his “Liberation Day” tariffs in early April.
Back then, the worst-case scenario looked more likely with many saying economic activity in Canada could come to a halt as the trade war threatened to disrupt global supply chains.
But now, even as Trump threatens to increase tariffs on Canadian goods, economists seem cautiously optimistic, forecasting some growth for the economy in 2025 as ‘Elbows Up’ Canadians are proving resilient in the face of uncertainty.
“No doubt, the economy is struggling with the trade uncertainty, and most particularly manufacturing, but other areas of the economy are holding up well enough to help it just keep its head above water,” said BMO economist Douglas Porter.
We might already be in a “technical recession,” which is defined by two consecutive quarters of negative gross domestic product (GDP), as forecasted by Porter as well as Desjardins economist Randall Bartlett and Oxford Economics economist Tony Stillo.
But it’s also possible we’ll be out of the woods entirely, said Porter.
“There is a good chance we may even avert that (recession), depending on what happens on the trade front in the next month.”
Even if there is a ‘technical recession,’ it won’t be broad enough across sectors or long enough to feel like a “true” one, he added.
“It would be a very strange recession indeed to have stocks at record highs and people still confident and flush enough to be buying vehicles in strong numbers.”
Economic indicators are surprisingly strong
In recent months, some economic indicators have come in surprisingly strong.
The latest set of job numbers showed that last month employment increased for the first time since January as the economy added 83,000 jobs. Meanwhile, the jobless rate unexpectedly fell to 6.9 per cent from seven per cent in May.
“Canada’s job market is on fire,” wrote Scotiabank economist Derek Holt in a note to clients on Friday. “Take that, Trump, we’re just tougher and more resilient north of the border.”
Still, the unemployment rate has been trending upward since the beginning of the year.
There is evidence that younger Canadians are struggling to land jobs. In June, the youth unemployment rate held steady at 14.2 per cent, according to Statistics Canada.
And, while layoff rates are stable, long-term unemployment is creeping up, meaning unemployed people are spending more time looking for work.
At the same time, the Canadian economy grew more than economists expected in the first quarter as businesses tried to get ahead of tariffs.
RBC’s July forecast for economic growth this year isn’t much different from the one in January, before any tariffs were implemented.
In January, the bank predicted Canadian GDP would grow 1.3 per cent in 2025, on average, and 1.5 per cent in 2026.
Their current forecast is for 1.5 per cent Canadian GDP growth in 2025 and 1.3 per cent in 2026, according to RBC economist Nathan Janzen.
“Our own base-case macroeconomic projections haven’t actually changed all that much for Canada with most Canadian exports to-date remaining exempt from new U.S. tariffs,” he said, referring to the fact that goods compliant with the Canada-United States-Mexico Agreement (CUSMA) are currently not being tariffed.
‘Technical recession’ looms
So what would a “technical recession” feel like to the average Canadian?
Oxford Economics’ Stillo said those working in the manufacturing sector would struggle the most. Some producers have already laid-off workers as they are forced to reduce production levels.
Meanwhile, workers in other industries would also be indirectly impacted.
In total, Oxford Economics predicts there will be 140,000 job losses as the recession trickles down from tariff-exposed industries into other sectors, driving the unemployment rate to 7.6 per cent (currently 6.9 per cent) later this year.
Current uncertainty around tariffs is also expected to continue to hurt business investment and consumer confidence, he added.
But Canada’s counter-tariff relief measures announced in mid-April could help soften the blow on consumer prices, said Stillo, and growth prospects would improve if Canada is able to strike a trade deal with the U.S. and avoid more tariffs.
“The depth of the downturn is a little bit less now than (predicted) in April,” said Stillo. “The most likely scenario has improved, but there’s still risk out there.”
