Canada’s economy started off strong in January but experienced stagnation in February, with concerns over tariffs and cold weather contributing to the slowdown. According to Statistics Canada, real GDP grew by 0.4% in January, but preliminary estimates for February suggested that growth stalled. Andrew DiCapua, chief economist at the Canadian Chamber of Commerce, warned that the country is facing challenges due to the impact of tariffs on economic growth, stating, “We’re running full speed into a wall.”
The January growth was primarily driven by strong performances in oil, gas, and mining sectors, as well as growth in manufacturing and construction. However, retail sales saw a decline. DiCapua pointed out that the recent growth in manufacturing and oil and gas was largely due to increased exports to the U.S., which are vulnerable to the imposition of tariffs. He noted that while these industries may be performing well now, the long-term impact of tariffs would eventually weigh on the economy.
The slowdown in February was likely attributed to cold weather and the end of a federal sales tax holiday, according to Andrew Grantham, chief economist at CIBC. He also suggested that the January growth might have been a result of companies ramping up production in anticipation of U.S. tariffs. President Donald Trump imposed full tariffs on Canadian products starting in March, including a 25% tariff on steel and aluminium, and additional retaliatory tariffs were announced for April 2. Ontario Premier Doug Ford indicated that some Canadian-made cars using primarily U.S. components might be exempt from these tariffs.
Prime Minister Mark Carney acknowledged the shifting dynamics of trade relations, stating, “The Canadian economy must recognize that the era of close trade integration with the U.S. is over and find a new direction.” Amid this uncertainty, the Bank of Canada (BoC) is considering adjusting its monetary policy. Governor Tiff McClam highlighted the need to address both weak growth and tariff-related inflation, which may lead to a possible change in interest rate policy. Economists, including Mark Ecolau of TD Bank, raised concerns about the potential risks to the economy due to the escalating trade war, with the possibility of the central bank cutting rates by 0.25 percentage points in the future.
DiCapua also predicted that if the economic data suggests a serious recession, the Bank of Canada could take more drastic measures to cut rates, adding to the uncertainty surrounding the nation’s economic outlook.