Canada Bracing for Economic Slowdown as Trade Uncertainty Looms

Canada’s economy is expected to weaken over the next two quarters, with new analysis from Deloitte projecting a slowdown driven by trade uncertainty, consumer hesitation, and weakening business investment. The firm’s latest economic outlook, released this week, warns that growth will slip into negative territory during the second and third quarters of 2025, with real gross domestic product forecast to contract by 1.1 percent and 0.9 percent respectively.

Despite this mid-year downturn, earlier strength in the economy is expected to cushion the overall impact, keeping annual growth in the positive at 1.2 percent. But Deloitte’s chief economist Dawn Desjardins cautions that rising global uncertainty—particularly regarding U.S. tariffs—could create a more difficult environment for both consumers and businesses across Canada.

In an interview with BNN Bloomberg, Desjardins emphasized that the real danger lies in the unpredictability of trade relations. Although Canadian goods currently benefit from exemptions under the United States-Mexico-Canada Agreement (USMCA), that protection could vanish if U.S. policy changes. If Canada loses its USMCA carve-outs, the report projects a long-term impact with real GDP permanently dropping by around three percent by 2030.

“If those exemptions are removed, it would significantly limit our access to the U.S. market,” Desjardins said. “That would ripple through our entire economy, from trade and investment to jobs and household spending.”

The report also forecasts that business investment will retreat this year, with non-residential investment falling by nearly one percent. Inflation, meanwhile, is expected to rise toward the upper end of the Bank of Canada’s target range before gradually returning to two percent by the end of the year. While companies may be able to absorb short-term cost pressures, shrinking profit margins are likely to push consumer prices higher over time.

According to Deloitte, even in the absence of worsening trade conditions, Canadian households and businesses are already growing more cautious. A slowdown in consumer spending is projected to accompany the drop in investment, reflecting broader concerns about job security and cost of living. The report adds that although the recent federal election has provided some clarity, many are still choosing to hold off on major purchases or investments.

In light of these vulnerabilities, Deloitte’s analysts argue that Canada should take this moment to rethink long-term strategy. The report encourages a focus on productivity improvements, reducing reliance on U.S. trade, cutting through regulatory red tape, and addressing interprovincial trade barriers.

While the economic outlook is not catastrophic, it signals a critical period ahead—one that could either deepen Canada’s dependence on a fragile trade relationship or spark a push for structural reform and resilience.