Transcript: Leading contenders for PM job signal tighter fiscal policy

Similarities and difference in the leading political parties

CT: On the surface, the 2025 election marks a stark ideological crossroad. Mark Carney’s leadership of the Liberals signals a technocratic, globally engaged policy agenda. Pierre Poilievre champions smaller government, lower taxes and a populist rejection of carbon pricing and central bank activism. Despite their contrasting styles, both appear poised to steer Canada away from the expansive fiscal approach of the Trudeau era. Carney’s early move to scrap the carbon tax — which was once a cornerstone of Liberal climate policy — suggests a pragmatic turn aimed at relieving household cost pressures and softening inflation. The consumer price index is set to decline by 0.7% to 1.0% as a result. Poilievre advocates more aggressive spending restraint and deregulation, particularly in energy and housing. Regardless of the victor, investors should expect a shift toward tighter fiscal policy, reduced headline inflation and a more business-friendly tone in Ottawa.

The ongoing impact of tariffs

CT: The U.S. administration’s April 2 tariff package represents a substantial economic constraint, and its implications will likely shape Canada’s macro-outlook more than any domestic election outcome. The U.S. has imposed a broad set of tariffs across Canadian exports, including autos, aluminum, lumber and agricultural foods. However, as Capital Economics notes, the effective trade-weighted average tariff is estimated to be just 8% and could fall to below 5% depending on how Canadian firms re-route supply chains or adapt to country-of-origin rules. While Canadian authorities have responded with countermeasures, the asymmetry in economic scale limits their impact. It’s worth noting that even a moderate tariff regime poses a meaningful headwind. Canadian export volumes — particularly in highly integrated sectors like auto manufacturing — are beginning to soften, and business investment tied to export capacity is slowing. While the scenario is less dire than the earlier 25% blanket tariff, the directional impact on growth remains negative. Our baseline now forecasts Canadian GDP growth of just 0.7% over the next four quarters, with material downside risks should trade frictions intensify or spill into services and investment channels. Business sentiment is deteriorating, and early indicators suggest a slowdown in capital expenditures tied to export-dependent sectors. What does this mean for markets? First, the Canadian dollar is likely to remain under pressure. We expect the Canadian-U.S. dollar exchange rate to approach $1.50 by year-end, reflecting both softer growth and wider interest-rate differentials. Second, government bond yields may drift lower as markets price in a more accommodative policy path and weakening fiscal spending from either political platform. And third, equity markets are likely to remain bifurcated, with domestic-facing sectors faring better than export-heavy industries now facing structural headwinds.

Other factors at play

CT: Compounding external pressures, oil markets will offer little support. The recent increase in oil output by OPEC risks capping WTI prices around $67 per barrel, with downside potential into 2026. This limits Canada’s traditional energy-driven tailwind and the Canadian dollar. Domestically, housing policy could become a differentiator between the parties. Poilievre proposes aggressive deregulation and zoning reform to boost supply. Carney may favour a more cautious, institutional approach. In either case, addressing Canada’s structural housing imbalance will be essential to building long-term economic stability.

And finally, what will be the key takeaway from this year’s federal election?

CT: For investors, the key takeaway is that while Canada’s federal election is rich in political drama, markets are signalling that the outcome — though directionally important — is not the dominant macro driver. Certainly for markets it is less about who wins and more about trade. U.S. trade policy, monetary adjustments and global rate differentials will shape Canada’s economic trajectory. As Canada enters a new political era, investors should look beyond the personalities and toward the policy convergence that lies beneath. The transition from Trudeaunomics to a more fiscally disciplined, business-oriented regime — regardless of party — sets the stage for a leaner economic profile. The real risk lies not in who governs Canada, but how Canada navigates the external shocks emanating from its largest trading partner. As always, disciplined portfolio construction and scenario-based analysis remain our strongest tools in managing what lies ahead.

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