As we reported final month, Oxford just lately reduce its 2025 GDP progress estimate to only 0.7%, to be adopted by a 0.2% contraction in 2026. 

“The economic system is being buffeted by unusually massive shocks,” stated Tony Stillo, Director of Canada Economics at Oxford Economics. “We’re not seeing the sort of natural shifts that usually consequence from financial coverage—issues are altering way more considerably.”

Whereas decreased tariffs between Canada and the U.S. provide some reduction, steeper U.S. tariffs on different nations are anticipated to weigh on international demand, not directly hurting Canadian exports and funding.

“The discount in U.S./China tariffs will not be a major mover for Canada,” famous Stillo. ”It reduces the chance of recession within the U.S., however for Canada, even 30% tariffs are nonetheless dangerous information, and these reductions will not be a game-changer in any respect.”

Canadian recession locked in

Whereas Canada’s retaliatory tariffs on choose U.S. items have been paused, the broader financial fallout from international commerce rifts stays entrance and centre. Oxford’s base-case situation continues to anticipate a Canadian recession, regardless of the elimination of retaliatory tariffs.

“We estimate that U.S. tariffs on Canadian auto elements alone decreased manufacturing by about 30%,” stated Stillo. “Canada’s retaliatory tariffs doubled that influence. So, whereas the pause lessens the squeeze on households, the overseas shock stays, and that’s why we nonetheless have a recession in our forecast.”

Oxford’s outlook additionally factors to a decline in enterprise funding on account of excessive coverage uncertainty. “The primary place these shocks hit is CAPEX [capital expenditures],” Stillo added, “and we’re already seeing that within the knowledge.”

Complicating the image is the massive share of Canadian items that also don’t qualify beneath USMCA commerce guidelines.

In accordance with 2024 U.S. census knowledge, solely 38% of Canadian exports totally meet USMCA guidelines of origin. If that quantity improves, the efficient tariff fee may drop from 12.6% to nearer to three–4%, lowering a variety of the pressure. 

“This will probably be a major issue transferring ahead that would cut back the influence of U.S. tariffs for Canada,” notes Stillo.

Immigration slowdown may weigh on long-term progress

Demographic tendencies are additionally now enjoying a bigger function in Oxford’s newest forecasts. Immigration, which has been a significant factor in financial and housing demand over the previous decade, is slowing sharply.

In accordance with Michael Davenport, Senior Economist at Oxford, the federal authorities’s medium-term plan displays a sustained pullback.

“What we expect will probably be a slowdown in inhabitants may very well be a major headwind for the Canadian economic system,” stated Davenport. 

Labour provide progress has already begun to sluggish, limiting the rise in unemployment regardless of broader financial weak point. Oxford presently forecasts the unemployment fee to peak at 7.4% in 2025, up from 6.9% at present. 

“We expect the long-term immigration development will stabilize at just below 1% of the inhabitants yearly,” Davenport added. “That’s a notable shift from the Trudeau period and extra aligned with what the economic system can take in, notably by way of housing provide.”

Falling sentiment and rising bond yields add to financial pressure

For debtors and mortgage holders, essentially the most instant problem might not come from tariffs or immigration, however from weakening client sentiment and altering bond market dynamics.

Oxford Economics notes that enterprise sentiment and client confidence have already seen vital drops, with a number of comfortable fashions exhibiting sharp declines as a consequence of present commerce tensions. “Important turning factors in these knowledge tendencies have a tendency to point weaker client spending on the horizon, and that’s what we’ve seen thus far,” famous Davenport. 

The Bloomberg Nanos Canadian Confidence Index (BNCCI), a month-to-month measure of client monetary well being tracked by Nanos, has improved modestly because the election of Mark Carney, transferring from 45.9 to 48.6 over the previous two months. However regardless of the post-election bump, general client spending stays unfavorable.

Bond markets are additionally reacting to ongoing uncertainty, with traders demanding a better danger premium—driving up long-term yields even because the Bank of Canada held its coverage fee regular at 4.75% final month.

“Although coverage charges will stay regular, we do assume that danger premium is rising given the numerous uncertainty, in addition to the truth that the inflation outlook has risen, so markets are beginning to worth in larger inflation on each side,” famous Davenport.

Even potential positives, like Prime Minister Carney’s purpose to take away inter-provincial commerce limitations by July 1, are unlikely to offset the near-term harm from tariffs and general uncertainty, Oxford famous.

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Final modified: Could 16, 2025