Slow growth, investment decline and tariff risks could stall Canada’s economy, Deloitte report finds
Deloitte has forecast a “modest downturn” for Canada’s economy in the second and third quarters of 2025, predicting gross domestic product (GDP) contractions of 1.1 percent and 0.9 percent respectively.
According to Deloitte’s economic outlook released Wednesday, the slowdown is expected to result from a combination of trade-related pressures and weaker domestic activity.
However, stronger growth at the end of last year and early 2024 is expected to keep full-year 2025 GDP growth in positive territory, with a projected 1.2 percent gain.
The report, cited by BNN Bloomberg, outlines potential consequences of US trade policies.
It warns that Canada’s economy could stall further if the United States removes tariff exemptions currently granted to Canadian goods under the United States-Mexico-Canada Agreement (USMCA).
Dawn Desjardins, chief economist at Deloitte Canada and co-author of the report, said in an interview with BNN Bloomberg that “all of that uncertainty is really what we think is going to be driving this period of really slow economic activity.”
Desjardins said that while tariffs will impact certain sectors more severely, maintaining compliance with the US free trade agreement could “alleviate some of that pressure.”
In March, US President Donald Trump exempted Canadian and Mexican goods covered by the USMCA from 25 percent tariffs. However, the report warns that these carveouts could be eliminated.
Desjardins noted that if Canada loses its preferential access to US import markets, the country’s real GDP could be “permanently lower by around three percent by 2030.”
She added that in such a scenario, “it will be a much more significant hit…all of our trade will likely see even a more strenuous pullback by businesses, and that will ripple through to the consumer, so we’ll see job losses, and we will see consumers pull back.”
Even without a change in tariff exemptions, Deloitte’s report expects non-residential business investment to fall 0.9 percent in 2025.
Desjardins said, “the weakness really is going to be a slowing in consumer spending activity, and it’s going to be accompanied by a pullback in business investment.”
Inflation is projected to reach the upper end of the Bank of Canada’s target range before returning to two percent by year-end.
The report notes that businesses may be able to absorb some short-term price increases caused by tariffs, but pressure on margins could eventually push prices higher.
“So, I really think that at the end of the day, we’re talking about an extremely uncertain environment,” Desjardins said.
She added that while the federal election has added some clarity, “we are now operating where both businesses and consumers have real concerns, and so we think they’ll pull back on spending.”
Deloitte’s report concludes that the trade uncertainty could serve as a catalyst for change.
It recommends enhancing productivity, diversifying trade away from the US, simplifying regulatory and permitting processes, and removing internal trade barriers.
