Deloitte’s latest economic outlook sees the pain of tariffs gathering pace in the months ahead as the short-term boost from companies front-loading activity fades.
The firm says the uncertainty from trade policies, and the efforts by companies to get orders in before tariffs hit, mean a sharp drop in investment and rising unemployment.
Deloitte Canada chief economist Dawn Desjardins says a modest downturn is ahead for Canada, while a loss of free-trade access to the United States would create a more permanent hit, reducing Canadian real GDP by around 3% by 2030.
The firm emphasizes how little clarity there is going forward, making longer-term forecasts difficult, but in the near-term, it sees Canada’s GDP shrinking 1.1% in the second quarter, then a further 0.9% in the third quarter.
It says Canada should still have positive growth of 1.2% for 2025 as a whole given the heightened activity early in the year.
The early run-up in activity can be seen especially in areas like machinery and equipment investment, where Deloitte forecasts a 30% year-over-year jump in the first quarter, but a 37% drop in the second.
Overall business investment is expected to see an 11.5% drop in the second quarter, as areas like construction also pull back.
Lower investments and business caution will also mean job cutbacks.
Deloitte sees unemployment peaking at 7.5% in the third quarter before starting to trend back under 7% next year.
Along with uncertainty over U.S. tariff policies is how Canada’s re-elected Mark-Carney-led Liberal government will respond, though Deloitte says supports are expected to focus on infrastructure spending to prepare for shifting trade patterns.
It’s also not clear yet how well the policies will work, but Desjardins says there is the potential that growth could be stronger than expected by focusing on productivity and diversifying trade.
“If we can capitalize on this momentum, Canada’s economy may well find itself emerging from this shock stronger and more resilient,” she said.
Ontario impact
A report by Ontario’s Financial Accountability Office (FAO) released Wednesday estimated Canada’s largest province could lose 68,100 jobs in 2025 and up to 137,900 by 2029 due to the trade war. Under the FAO’s modelled scenario, U.S. tariffs are applied to 20% of exports and Canada’s retaliatory tariffs are applied to 15% of imports into Ontario. The U.S. accounts for more than three-quarters of Ontario’s goods exports and 60% of its services exports.
In addition, real GDP growth in the province would slow to 0.6% in 2025 and 1.2% next year, compared to growth of 1.7% and 1.9%, respectively, in the absence of tariffs.
With files from IE Staff.