The prospect of much higher U.S. tariffs has hammered economic sentiment in Canada, pointing to a recession this year, according to Fitch Ratings.
In a new report, the rating agency said that one of the primary casualties of a sharp rise in U.S. protectionism has been business and consumer sentiment in Canada.
“Business sentiment measures have fallen sharply, suggesting cuts to investment and household spending,” Fitch said, noting that the latest reading saw sentiment drop to its lowest level since the pandemic.
At the same time, consumer sentiment has plunged too, “in part reflecting growing job insecurity fears and higher unemployment,” it said. The rating agency noted that the jobless rate rose to 6.9% in April, with the ranks of the unemployed reaching their highest level since June 2021.
Historically, a sharp drop in these kinds of sentiment measures are “consistent with a sharp drop in GDP,” said Jessica Hinds, director at Fitch, in a release.
Indeed, this gloomier outlook underpins its forecast that Canada will suffer a recession in 2025, Fitch said.
In its latest forecast, Fitch now sees just 0.1% growth this year and 0.5% in 2026.
“This implies a peak-to-trough contraction in GDP of 1.5% this year, which would be a mild recession by past standards,” Fitch said.
“The close business ties between Canada and the U.S., developed over decades, have been called into question by the shift in U.S. trade policy, so it is no surprise that Canadian businesses are extremely concerned,” said Hinds.