Canada Faces Recession Risk Amidst Imminent Tariff War
Economic experts warn of a severe economic shock for Canada due to escalating tariff tensions with the United States.
Impact on GDP and Employment:
- Economists estimate a 2-4 percentage point decline in real GDP growth, potentially leading to the first annual contraction since 2009.
- Unemployment is expected to rise, potentially exceeding 7%.
Inflationary Pressures:
- Consumer prices are likely to surpass the Bank of Canada's 2% target.
Loonie Depreciation:
- The Canadian dollar (loonie) is projected to weaken further, possibly dropping to 65 US cents.
Recessionary Risks:
- Toronto-Dominion Bank, Bank of Montreal, and Canadian Imperial Bank of Commerce economists predict a potential recession if tariffs persist for extended periods.
Monetary and Fiscal Policy Response:
- The Bank of Canada may consider cutting policy rates to stimulate the economy.
- Fiscal stimulus measures could also be implemented to mitigate the impact.
Economic Challenges Exacerbated:
- Royal Bank of Canada economists highlight that the tariff war exacerbates existing economic challenges, including lingering effects of interest rate hikes and excess supply.
Existential Threat:
- Capital Economics views the tariffs as an "existential threat" to Canada, considering the significant contribution of exports to the US to its GDP.
Market Volatility:
- The loonie and peso face vulnerability to declines exceeding 2-3% in Asian trading.
Consumer Impacts:
- Increased costs of goods due to tariffs will be borne by consumers on both sides of the border.
- Reduced availability of American-made products in Canadian stores.
- Higher prices of fruits, vegetables, appliances, and cars anticipated.