A forecast from the Canadian Federation of Independent Business estimates the economy saw muted growth in the first three months of the year and predicts a significant contraction for the second quarter.
The report estimates the Canadian economy grew at an annualized rate of 0.8 percent in the first quarter of the year.
However, it forecasts the economy will contract at an annualized rate of 5.6 percent in the second quarter.
The report, based on the CFIB’s most recent monthly business barometer data, says the drop comes from a historically low long-term business sentiment in the context of the trade war with the United States.
U.S. President Donald Trump has hit Canada with a broad range of tariffs, while Ottawa has responded with its own set of duties on goods coming from the U.S.
CFIB chief economist Simon Gaudreault says the raging trade war will likely drive up the costs of doing business and lead to inflation.
“Given how the long-term business confidence is at historically low levels, it’s not surprising that small businesses are pausing their capital expenditures,” Gaudreault said in a statement.
“It’s nearly impossible for owners to plan expansions or investments when they’re not sure if their business will even be open in six months.”
The CFIB report noted the inflation rate rose to 2.4 percent in the first quarter after falling in 2024 and forecast it would continue to rise to 2.7 percent in the second quarter.
It also noted private investment grew by 10.7 percent in the fourth quarter of 2024, but uncertainty is weighing on this year’s investment plans .
It estimated private investment fell 13.9 percent in the first quarter and forecast a drop of 19.1 percent in the second quarter.
