On the uncertainty of the Canadian trade war:
“Dramatic protectionist shifts in US trade policy and chaotic offerings have led to increased uncertainty, shaking financial markets, lowering global growth prospects, and increasing expectations of inflation. The path to US trade policy is highly unpredictable.
“We still don’t know if tariffs will be imposed, if they will be reduced or escalated, or how long this will last.”
“We don’t know what’s coming next. US policies could come and go before the situation becomes more clear.”
Forget the usual inflation guidance:
“Given this uncertainty, point forecasts for economic growth and inflation are of little use as a guide.”
“What happens with an intrusion depends on what happens with tariffs. And if you find yourself in a long-term trade war, you see opposing pressure on inflation. The higher costs of intrusions and higher costs of tariffs, both the uncertainty about the oppositional enforcement of tariffs and the oppositional enforcement of intrusions make inflation particularly difficult.
Inflation scenario #1:
“Most of the new tariffs will be negotiated, but the process is unpredictable and businesses and households will remain cautious. GDP growth in this scenario stalls in the second quarter and then expands moderately.
Inflation scenario #2:
“A long-term global trade war. The economic impact is severe. Canada’s GDP contract in the second quarter will be a one-year recession. Growth will gradually return in 2026, but US tariffs will remain soft until 2027 as they permanently reduce Canada’s potential output and lower our levels. As weak demand limits ongoing inflationary pressures.”
