Bank of Canada predicts recession as trade tensions persist

While assessing the implications of US trade policies, the Bank of Canada (BoC) has prepared two forward-looking scenarios. The optimistic one suggests temporary economic difficulties until most of the problems associated with the trade policy uncertainty are resolved. In this case, the country's GDP will slow in the second quarter, with exports declining and investment falling.

According to the negative scenario of keeping large-scale tariffs, the economy will face a severe recession for about a year. Tiff Macklem, the head of the BoC, stressed that it is impossible to make accurate forecasts under present conditions due to the high unpredictability of the US trade policy. The Canadian regulator's actions will be focused on maintaining price stability and economic growth.

The pessimistic forecast indicates a significant drop in Canadian exports through mid-2026, which would result in production cuts and massive layoffs among exporters. Consumer spending will decline amid rising unemployment, and a weak business climate will discourage investors.