Economic forecasts 'now measured in days, even hours,' says report, predicting possible job losses of 100,000
Canada’s economy is bracing for a potential downturn as new U.S. tariffs threaten growth, investment, and employment.
That’s according to a recent report from BMO Economics which warns that trade uncertainty is already weighing on investment, with the Canadian economy particularly vulnerable due to its high reliance on exports.
"The shelf life of economic forecasts is now measured in days, even hours, due to the U.S. Administration’s unpredictable trade policies," says report author Sal Guatieri , senior economist and director of economics at BMO Economics.
He further notes that uncertainty alone is affecting investment decisions, putting additional strain on businesses.
The U.S. tariffs, which took effect on March 4 but were partially deferred until April 2, include a 25% duty on most Canadian exports and a 10% levy on energy products, critical minerals, and potash. Canada has pledged to retaliate with its own 25% duties on about a third of U.S. exports.
‘Contracting’ economy amid US tariffs
According to the BMO forecast, the economic impact could be severe: “The combined levies could result in the Canadian economy contracting for two quarters, reducing real GDP growth by 1.5 percentage points this year to just 0.5%,” says Guatieri. This would mark a significant decline from the 1.5% growth seen in the previous two years.
Before tariffs became a reality, he notes, “the economy had a decent chance of picking up to a near-2% rate this year” due to lower interest rates, increased consumer spending, and a stronger housing market. However, the outlook has now shifted sharply.
The trade dispute could also have a direct impact on employment. BMO projects that the downturn could lead to “more than 100,000 net job losses (-0.5%) and push the unemployment rate to 8.0% by year-end, up from 6.6% in February,” says Guatieri. This follows a period of strong job growth, with 387,000 jobs added over the past year through February.
There are three common options for Canadian employers when it comes to staffing in an economic downturn, says one employment lawyer.
Counter tariffs, weakening Canadian dollar
The Canadian dollar is expected to weaken further, potentially falling to 67 cents US (C$1.49) by September from its current level just under 70 cents.
“Counter tariffs, together with a weakening Canadian dollar… could push CPI inflation to 2.7% in the months ahead,” the report states, though it predicts that inflation will ease back to around 1.9% by next spring if unemployment rises further.
In response to these risks, the Bank of Canada has already lowered policy rates by 225 basis points since last June, bringing the benchmark rate to 2.75%. BMO expects additional cuts, noting that the central bank will likely “look past the temporary inflation rise and focus on protecting workers and businesses in this ‘new crisis,’” says Guatieri. Further rate cuts are anticipated at the next three meetings.
Beyond the immediate trade measures, he warns that “Canada faces an unprecedented level of risk” as the U.S. administration continues to threaten “economic force.” New U.S. tariffs on steel and aluminum imports, imposed on March 12, are expected to have a moderate impact on overall growth but could significantly affect both industries.
“Potential reciprocal tariffs and industry-specific duties on April 2 could amplify the damage, prolonging and deepening the expected recession,” Guatieri cautions. The automotive sector, in particular, is seen as vulnerable.
Half (50 per cent) of Canadian employers are reducing production or laying off employees in anticipation of tariffs, according to a KPMG survey.
These economic challenges come as Canada approaches a potential spring federal election. The BMO report highlights the difficulty policymakers will face in supporting workers and businesses while keeping Canadian firms competitive against U.S. counterparts benefiting from lower corporate taxes and deregulation.
