Canada faces a harsh and painful recession if a trade war with the United States drags on, Bank of Canada Governor Tiff Macklem said on April 16, warning that mounting uncertainty is already damaging the economy, according to Blacklock’s Reporter.
“If this continues, it will be a serious, four-quarter recession,” Macklem told reporters. “It’s going to hurt.”
The central bank held its key interest rate steady at 2.75% and said it is treading carefully in a volatile economic climate. Macklem described the outlook as “clouded,” saying the Bank is being less forward-looking than usual until the effects of U.S. tariffs become clearer.
“We don’t know what tariffs will be imposed, whether they’ll be reduced or escalated, or how long this will last,” he said.
He noted that economic data already show warning signs: business spending is slowing, consumer activity is weakening, and job growth has stalled. Employment was flat in February and declined in March, with more companies reporting cutbacks.
Macklem acknowledged the economic damage could deepen. “Some exporters could go bankrupt,” he said. “That could spill through the economy. Unemployment could rise more. Household spending could retrench more. Yes, that is a risk.”
He added that monetary policy has its limits in times of trade conflict. “The economic impact could be severe,” Macklem said. “The uncertainty alone is already causing harm. Monetary policy cannot offset the impacts of a trade war.”
When asked if a recession is inevitable, Macklem said it depends heavily on how the United States proceeds.
The Bank of Canada’s next rate announcement is scheduled for June 4.