Although tariffs accumulate in recent months, economists say there are few signs of economic collapse, although Canada’s economy is beginning to show cracks.
The TD Bank economist, Marc Ercolao, admitted that it is a “surprise” to see that the economy remains against a massive interruption of Canada’s largest commercial partner.
“Many months ago, ourselves, as well as other economic forecasts, had a perspective for a much weaker Canadian economy. Obviously, that is not manifested now,” he said in an interview.
“We are avoiding the worst case.”
Last week, the governor of the Bank of Canada, Tiff Macklem, said that Canada’s economy remains under the weight of US tariffs with “some resistance.”
Only a few days later, the president of the United States, Donald Trump, added tariffs of 35 percent over Canadian goods to a count that includes strong duties on steel, aluminum, cars and, more recently, semi-broken copper.
On Thursday, Statistics Canada gave an idea of how the economy concluded the second quarter of the year when many of those rates had a full effect.
The agency sees a couple of small contractions in the Gross Real (GDP) domestic product by the industry in April and May, but its flash estimates show that the economy is bouncing in June in June.
If those first readings work, Statistics Canada said it would be good enough for flat growth in general in the quarter.
Some of these results are distorted by volatility: companies that rush to get ahead of tariffs promoted the activity in the first quarter, and that is giving way to weakness in the second quarter, for example.
It is still difficult to identify the exact impacts linked to tariffs, Ercolao said, but a broad trend is emerging.
“What we can say in the last six months or so is that economic activity is something flat.”
The service sectors remain relatively well, but Ercolao said that heavy export industries, such as manufacturing and transport, are affecting the impact.
Bank of Canada says that the growth of consumer trust
In an attempt to underpin part of that weakness, the federal government announced several programs to support workers affected by the wider rates and plans to accelerate defense and infrastructure spending.
Macklem pointed out during his press conference on Wednesday that business confidence and consumers are still low, but have improved according to the recent surveys of the Central Bank.
While some sectors exposed to commerce have faced employment losses and unemployment have generally had an upward trend to almost seven percent, employers in other parts of the economy continue to expand their payrolls.
“Consumption continues to grow,” Macklem said. “It is growing modestly. It is certainly being restricted by the uncertainty caused by tariffs. But it is growing and we hope it continues during the third and fourth quarter.”
Last week, the Bank of Canada maintained its policy interest rate without changes in 2.75 per CE.NT in a third consecutive decision.
When a journalist asked for his response to the calls from the Prime Minister of Ontario, Doug Ford, for a tariff cut, the governor of the Bank of Canada, Tiff Macklem, said that the decision to keep the rate at 2.75 percent was not political, and that the bank will ensure that a problem of fees “does not become an inflation problem.”
If the Central Bank panicked over the ability of the Canadian economy to resist US tariffs, Ercolao argued that he would probably have reduced that rate.
Last week’s GDP readings were good enough to increase their perspective for the third quarter in positive territory. Bank’s forecast now expect Canada to avoid a technical recession this year.
BMO chief economist, Doug Porter, said in a note to customers on Friday that the reduction of personal taxes of Ottawa at the beginning of the month and the solid demand for national trips in the midst of the commercial war will boost the economy this quarter, as well as “the feeling of less reluctantly” around economic forecasts.
Some other forecasters continue to launch a recession induced by the rate in their perspectives.
In the Monetary Policy Report of the Bank of Canada published together with the rate decision, he described a scenario for the economy assuming that the tariff situation remains largely the status quo.
Canada avoids a recession in that result. Growth in 2025 and 2026 remains positive in general, but half a percentage point lower than it would have been without the weight of the rates.
Time to adapt, mitigate negative impacts
Macklem told journalists that the Bank of Canada would expect the economy to continue to grow even with today’s rates, “but it will be on a permanently lower path.”
“Unfortunately, the sad reality is that tariffs mean that the economy will work less efficiently.”
Porter said in his note that the real impact of the new Trump 35 percent rate on Canada’s economy could be less than the number of the headline suggests.
Due to a size for Canadian exports that comply with the Canadá-Usexico (Cusma) agreement, BMO sees the effective rate of the United States in approximately seven percent under the new tasks, less than a higher percentage point than before Friday.
But with Cusma for renegotiation in 2026, Porter said that the 35 percent tariff rate could appear as a “cudel” on negotiations, which has a full effect if the commercial agreement expires without a new agreement.
The Bank of Canada published a separate “climbing” scenario this week that would see the United States eliminate the exemption of Cusma from Canada as global rates increases.
Real GDP would eliminate additional 1.25 percent by 2027 in this more severe case; Porter said this result would be “serious, but far from being disastrous.”
Ercolao said that much of the tariff fatality and sadness at the beginning of the year were linked to the speed at which these import tariffs would be imposed.
But the nature again and out of the United States commercial restrictions to date has given companies time to adapt to the new way of doing constant business and delays in the implementation, he said.
“If we returned to when Trump began his presidency, if he had gone 100 percent in his tariff plan immediately, we would probably have seen a deep economic contraction just because it would have been so sudden,” Ercolao said.
“Now we have been given the time to at least try to mitigate some of the negative impacts of what these tariffs were expected to do to the Canadian economy.”
