The 2025 federal budget charts a path for the Canadian economy out of the current crisis. But it also highlights how deep the hole the economy is in right now and how small the margin for error is as Canada navigates the dangers of a trade war.
“This budget must be generational in its ambition and serve to shape our economy and the future of our nation,” said Finance Minister François-Philippe Champagne. “There is no room for retreat, ambiguity or even standing still; only for bold and swift action.”
The budget sets out several scenarios for economic growth over the next five years. The so-called bull scenario imagines a world in which US tariffs are reduced and global trade returns to normal.
In the “negative scenario,” the Canadian economy would contract during the April-June quarter. Unemployment would peak at around 7.4 per cent and Canadian growth would be weak for several years.
“nominal GDP [would be] on average, it will be lower by $51 billion per year over the forecast horizon relative to the August 2025 survey forecast,” the budget says.
That scenario would cause a further weakening of the Canadian economy, and it is not unreasonable. It’s still entirely possible that next month’s GDP numbers will show that Canada fell into a recession this summer and that unemployment has been rising for months.
Finance Minister François-Philippe Champagne delivered the Liberal government’s first budget on Tuesday. CBC reporters discuss the political and economic implications of the budget, including a major new direction in defense spending.
Will the trade chaos end?
The budget makes a clear promise about the way forward: that Canada will rise relatively quickly from the ashes of two quarters of trade chaos.
But David Macdonald, senior economist at the Canadian Center for Policy Alternatives, says there’s a problem with that promise.
“It’s not clear to me that the chaos will end and that the impact on Canada will end anytime soon,” he said.
Macdonald says budget promises to rethink Canadian economy; help companies find new markets; and help industries adapt to a new and less predictable future than the one to which they are accustomed.
It offers billions of dollars in tax incentives for Canadian companies to build new facilities. And it promises vast resources to ensure Canadian products find a market.
But Macdonald says that comes with a high degree of difficulty. And with the Canadian economy already on the brink of a recession, there isn’t much room for maneuver if things go wrong.
“How do we substitute federal government intervention for what used to be trade with the United States? How do we substitute international trade for trade that used to be with the United States? That’s a very challenging proposition,” he said.
And while the budget describes what a more problematic economic scenario would look like, it doesn’t offer many remedies if things actually get worse, rather than better.
“If the situation deteriorates economically, this [budget] “We’re going to have to change,” says Sahir Khan, co-founder and executive vice-president of the Institute for Fiscal Studies and Democracy at the University of Ottawa.
The situation could deteriorate in many ways.
The trade war could deepen. Some other external shock could impact the economy or, perhaps more likely, the benefits set out in the budget could take longer to be felt.
“I don’t think these measures are going to take effect in the short term. This is about confidence in the short term, but the results of a major capital and defense strategy will be felt for decades,” Khan said.
The damage is already being done
While this budget charts a vitally important new path, the fact is that very real damage is being done right now to the Canadian economy and Canadian businesses.
So the toughest hurdle for the budget is not necessarily simply the implementation of some radical changes (from a government that has previously had problems with implementation). It’s not even about seeing if the bet turns out well.
The hard part will be making sure the Canadian economy stays afloat.
Finance Minister François-Philippe Champagne responds to skepticism that his first budget can meet his claim of $1 trillion in total investment over five years, and defends the budget deficit’s value of $78 billion. Champagne asks MPs from other parties to “think twice” before deciding not to support the document, as it is unclear where the Liberals will find enough support to approve it.
If Canada can avoid a recession, stop the unemployment rate from rising further, and avoid further escalation of the trade war, implementing the changes planned in this budget will be much easier.
But it is a difficult task, and at least part of it is outside the control of the Canadian government.
