Canada’s Economy Headed for ‘Modest Downturn’ This Year Due to Tariffs: Deloitte

An employee works on the production line at the Martinrea auto parts manufacturing plant in Woodbridge, Ont., on Feb. 3, 2025. The Canadian Press/Chris Young

Canada’s economy will see a drop in investment and an increase in unemployment this year due to U.S. tariffs, a new report from Deloitte Canada suggests.

The company’s annual economic statement released on April 30 forecasts the impact of U.S. tariffs on the country’s economy for the next year.

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 gross domestic product (GDP) by roughly 3 percent by 2030.

Desjardins said the country was “facing an extremely uncertain economic operating environment” due to U.S. tariffs.

“Uncertainties surrounding the magnitude, scope, and duration of tariff policies are causing serious concerns for businesses,” the report said. “These low confidence levels are weighing on investment, hiring, and spending decisions.”

Canada’s GDP will shrink 1.1 percent in the second quarter, and a further 0.9 percent in the third quarter, according to Deloitte.

Overall business investment is expected to see an 11.5 percent drop in the second quarter, as areas like construction also pull back, Desjardins wrote in the report. The unemployment rate is expected to peak at 7.5 percent in the third quarter before starting to trend back to less than 7 percent next year.

Desjardins predicts “soft consumer spending” by mid-year, and an increase in prices.

“Pressure on profit margins will eventually translate into higher selling prices,” said the report which also  forecasted an increase in inflation toward the Bank of Canada’s 2 percent target in mid-2025, and then lower later in the year.

“We expect employment growth to slow to 1 percent in 2025, with most of that gain having already occurred.”

All provinces are expected to see growth this year, according to Desjardins. However, the report notes growth in Ontario, Quebec, and New Brunswick could be subdued because the economies are heavily reliant on manufacturing.   

The report also notes that economic conditions could deteriorate further if the U.S. drops tariff exemptions to imports that fall under the United States-Mexico-Canada Agreement (USMCA).

Yet, Desjardins said that if Canada continues to capitalize on the desire to boost productivity and diversifying trade, the country could emerge from the tariff situation “stronger and more resilient.”

The upside of the tariffs is that more Canadians are willing to buy local products, Deloitte said.

“We must reduce our dependency on the U.S. for our goods and services,” the Deloitte report said, adding that Canada must break down “antiquated internal trade barriers” to boost internal trade between provinces and territories.