Canada Outlook: Tariffs to push Canada into recession

We have raised our assumption for the average US tariff rate that Canadian exporters will face, to a level that will likely push the economy into recession. The downturn should be only moderate if, as we expect, the government steps in with fiscal support. Nonetheless, tariffs will do permanent damage by reducing potential GDP. In average annual terms, we expect GDP growth to be 1.2% this year, 0.7% in 2026 and 1.4% in 2027. Despite retaliatory tariffs, the scrapping of the carbon tax reduces the risk of inflation rising above the Bank of Canada’s 1% to 3% target range on a sustained basis, leaving scope for the Bank to provide a bit more monetary support by cutting its policy rate to 2.0%.