Under pressure, Canada's economy still holds long-term possibilities for institutional investors, according to experts speaking at TD's Sharing of Knowledge event
Trade wars, an economy licking its wounds, and a new government; Canada stands at an important point in history in how it will respond to current market conditions. How the country proceeds may have a profound impact on institutional investors for years to come.
Speaking at a panel discussion last week, the senior vice-president and chief economist at TD Bank Group, Beata Caranci, and Frank McKenna, a former politician and now deputy chair of wholesale banking at TD Securities, discussed the high-level view of Canada’s position and how its economy may emerge a stronger version of itself.
“I'm extraordinarily optimistic because right now, everything is so pessimistic,” said McKenna. In a country standing on very shaky ground, he said that recent events have created conditions that could result in positive long-term economic change.
“The game has changed,” said McKenna when asked about the recent election and the new Liberal government.
McKenna, former Premier of New Brunswick and ambassador to the United States, said that Canada’s recent unification in response to tariffs has given the country a leg up over a deeply divided U.S.
“Trump has made the United States an existential threat to the existence of Canada that has mobilized Canadians in a way that I've never seen before,” he said. Meanwhile, McKenna pointed to Trump's tariffs facing legal trouble.
Last week, the US Court of International Trade found that the president's tariffs were in violation of the International Emergency Economic Powers Act of 1977. Now, the tariffs are destined to head to the Supreme Court.
Looking inward
While the country has seen a novel unification in rallying against the US, McKenna made it clear that “the Prime Minister’s got his hands full,” and pointed out that “ideologically, what he wants to do in the country is quite different from what his predecessor did.”
Regarding the economy, Caranci said that the focus needs to shift to corporate structures, something she and her team have already been advising.
“We've had so much of the focus on where we've seen tax advantages or subsidies deductibles put into the household sector,” Caranci said. She acknowledged that the previous Liberal government under Justin Trudeau shored up the household sector with programs that focused on benefits like affordable daycare. Meanwhile, tax rates are heavily skewed in favour of small- to medium-sized businesses. While small businesses may have a rate sitting at around 5%, a larger corporation rate may be scaling upwards of 25%. A tax landscape that looks like this does not drive innovation or adoption, Caranci said.
“We really have to get this government going so that all firms are important in this country, and you don't want them to be picking and choosing the winners and losers,” she said. “My advice is very singular and clean: corporate, corporate, corporate. Don't be afraid, say the words and defend corporations in Canada.”
For this, Caranci is optimistic. Looking at Prime Minister Carney’s background in economics, she said that “this is a very business-oriented individual who understands the complexities of getting things done and who wants to cut through as much red tape.”
Big spending is not enough
Prime Minister Carney’s new government also faces daunting spending tasks. Despite the promised $130 billion in spending over the next four years, Caranci said it won't be enough.
She cited large numbers coming with projects like the Trans Mountain Pipeline, which cost a whopping $30 billion. Or more concerningly she referenced the projected NATO targets, which are believed to be 5% of national GDP. Canada, which failed to hit 2%, will have its budget put further under pressure.
“This really does come down to execution and transparency,” said Caranci. Her primary concern comes down to rating agencies, “Rating agencies really need to be convinced that [spending] is leading to future growth outcomes.”
Canada's premiers and Prime Minister Mark Carney have agreed to fast-track approvals for major national projects, aiming for two-year review timelines. Legislation for a new federal office will be tabled by Canada Day.https://t.co/17p6LtptXr
— Benefits and Pensions Monitor (@bpmonitor_ca) June 5, 2025
Frank McKenna sees the current conditions as route for the federal government to downsize and consolidate. Recalling the government reform in the 1990s aimed at reducing a budget deficit, McKenna said that the “Country, hit a wall. But it mobilized national opinion in a way that turned out to be very positive.”
A notable effect of these reforms was the ratio of national debt to GDP falling from 100% of 1995 to 67% in 2007. Today that number sits around 110%.
“We re-engineered our government. They re-entered the federal government. The end result was we balanced our budgets,” said McKenna, adding that “I think we can do that again because we have a national emergency, we've got a burning platform, and I think the country is united.”
