Canadian Economy Will Be Among Those Hit Hardest by Global Slowdown, Says OECD

The Organization for Economic Co-operation and Development (OECD) has revised its forecast for global economic growth, predicting a slowdown from 3.3% last year to 2.9% in 2025 and 2026. The slowdown is most concentrated in the United States, Canada, Mexico, and China, with other economies expected to see smaller downward adjustments. The growth outlook would likely be even weaker if protectionism increases, further fueling inflation, disrupting supply chains, and rattling financial markets.

Additional increases in trade barriers or prolonged policy uncertainty would further lower growth prospects and likely push inflation higher in countries imposing tariffs. If Washington raised bilateral tariffs by an additional 10 percentage points on all countries, global economic output would be about 0.3% lower after two years. The key policy priorities in this context are constructive dialogue to ensure a lasting resolution to current trade tensions.

The OECD projects that Canada’s economic growth will slow from 1.5% in 2024 to 1.1% in 2025 and 1.1% in 2026 because of trade tensions with the U.S., long its largest export market. The organization also expects that business investment and exports will decline this year, and a weak labour market will weigh on Canadian households’ spending behaviour.

Headline inflation will tick up slightly, but the impact of higher tariffs on consumer prices will be partly offset by lower gas prices, which the organization attributes to the end of the consumer carbon tax. Core inflation, the Bank of Canada’s preferred measure for tracking price growth, will increase “for a period” before coming back down toward the central bank’s 2% target next year.

Inflationary pressures from higher tariffs will require a more cautious approach to lowering interest rates. The rate currently sits at 2.75 percent, with the bank’s next meeting set for Wednesday. Increased government spending, particularly on housing affordability and new social programs, has recently worsened the general government balance, although it had previously been in surplus.

Source: CBC

Canada’s First Quarter GDP Expands by 2.2% Annualized Rate, Beating Estimates

Canada’s economic growth in the first quarter was driven by a rush to get ahead of its looming tariff dispute with the United States. Real gross domestic product rose 2.2% annualized in the three-month period, up from 2.1% in the fourth quarter. The first-quarter figures topped Statistics Canada’s flash estimate for annualized growth of 1.5% and beat calls for 1.7% from a Reuters poll of economists.

Threats of tariffs from the United States suffused the first quarter for Canada’s economy, particularly for the trade-sensitive automotive industry and steel and aluminum sectors. Import taxes and Canada’s retaliatory tariffs were initially applied in early March, though each has since faced various adjustments and exemptions.

Statistics Canada said fears around the looming trade war inspired both Canadian importers and exporters to rush to get ahead of tariffs. Goods exports were up 1.6% in the first quarter, driven by increased shipments of passenger vehicles and industrial machinery and parts. Non-farm businesses were also building up their inventories, reversing withdrawals from the previous quarter and pushing GDP higher.

Hampering growth was the uptick in imports and a slowdown in housing resale activity. Ownership transfer costs, which represent resales, were down 18.6% quarterly, the largest drop in roughly three years. Rates of household spending and saving were both slowing meanwhile in the first quarter amid weaker income gains.

BMO chief economist Doug Porter noted that despite the strong headline figures, the details of the first-quarter GDP print are less rosy on closer examination. The central bank tends to keep its policy rate elevated when it’s worried about inflation resurging and lowers it when the economy needs a boost, but both are at risk amid the United States’ upending of global trade.

Source: Globe and Mail
Source: The Star
Source: Financial Post
Source: Statistics Canada

Reducing Internal Trade Barriers Is a Top Priority for Businesses, KPMG Poll Shows

A KPMG poll of 250 Canadian business leaders has revealed that nearly two-thirds of them believe the government should work to reduce internal trade barriers to improve productivity. 

The survey, conducted between May 9 and May 20, found that 64% of business leaders believe that removing interprovincial trade barriers and harmonizing regulations and credentials is a top priority for the government. 82% of business leaders believe that eliminating these barriers will improve their company’s efficiency and productivity. 

Other top priorities identified by business leaders include a comprehensive tax review to improve competitiveness at 58% and a government streamlining of processes and expediting resource and infrastructure projects at 56%. 

Source: Globe and Mail
Source: The Star