Bank of Canada Concerned about Permanent GDP Impact from Trade Conflict with US
The Bank of Canada's Governing Council has expressed concerns that a prolonged trade conflict with the United States could permanently reduce Canada's domestic GDP.
In the minutes of its recent policy decision meeting, the Bank noted that the constant threat of tariffs posed a significant risk to the economy. The decision to cut the key policy rate by 25 basis points in January was influenced by this uncertainty, as well as the need to support economic growth.
The Council emphasized that a protracted trade conflict would lead to a decline in economic activity and a permanent reduction in GDP growth. They also highlighted the potential for tariffs to reduce incomes, disrupt supply chains, increase inflation, and weaken the Canadian dollar.
Anecdotal evidence suggests that businesses in Canada are already considering moving to the US due to tariff concerns. The Bank expressed concern that this could lead to capital flight and erode Canadian competitiveness.
The Council will continue to closely monitor the impact of tariffs on the economy, particularly on supply chains and intersectoral linkages.