Canada is on the brink of a severe recession due to escalating trade tensions, according to a new report from the Budget Office.
Blacklock's Reporter says the forecast aligns with similar warnings from the Bank of Canada, raising concerns about the long-term economic impact of tariffs.
“Our analysis indicates these trade policies would cause a permanent reduction of approximately 2% in Canada’s real GDP over the medium term,” stated the Budget Office’s Economic And Fiscal Outlook report.
The report emphasized the unpredictability of tariff impacts, noting that the severity of economic consequences depends on how trade restrictions evolve and how Canada responds.
Even the threat of tariffs poses a risk, analysts warned. “Uncertainty surrounding trade could have a greater effect on business spending and household spending than anticipated,” the report stated.
A delay in business expansion and reduced consumer discretionary spending could slow economic activity further, leading to weaker job growth and lower overall demand.
“There is significant uncertainty regarding the extent and duration of a potential global trade conflict,” the report added.
The warning was issued just one day after U.S. President Donald Trump imposed 25% tariffs on Canadian exports.
The Bank of Canada also cautioned in a February 21 forecast that tariffs would drive the country into a two-year recession, the worst economic downturn in decades.
“Under the tariff scenario, Canadian output would decline by almost 3% over two years,” Bank of Canada Governor Tiff Macklem said at the time.
“That essentially eliminates economic growth over that period.”
“Increased trade friction with the United States is a new reality,” Macklem told the Board of Trade in Mississauga, Ontario.
“Lower export revenues would shrink household incomes, while retaliatory tariffs would raise consumer prices, reducing spending on everything from cars to entertainment and housing.”
Macklem predicted an 8.5% decline in Canadian exports and a 12% drop in business spending.
“Canadian exporters would be forced to cut production and lay off workers,” he said.
“This would be a very different shock than the Covid-19 recession,” Macklem noted. “That downturn was followed by a rapid recovery as the economy reopened. If tariffs are prolonged and widespread, there won’t be a swift rebound.”
“We may eventually return to our current growth rate, but the overall level of economic output would be permanently lower,” Macklem cautioned. “This is more than a temporary setback—it’s a structural shift.”