BURST
OTTAWA — A Crown corporation is forecasting that the Canadian economy will officially fall into a recession this calendar year, part of a global downturn directly linked to U.S. President Donald Trump’s tariff policies.
Export Development Canada (EDC) is forecasting economic growth of just 0.9 per cent for 2025, inching up next year to just one per cent. That growth rate for Canada this year is below that of the United States (1.7 per cent) and the average for developed economies (1.3 per cent) but stronger than Germany and France (0.3 and 0.6 per cent, respectively).
EDC, a Crown corporation designed to help Canadian companies succeed internationally, also said the developing world is expected to show much stronger growth rates (3.8 per cent) when the numbers have been finalized, leading to an overall global growth rate of 2.7 per cent.
“Trade tensions have destabilized the foundations for the global economy,” wrote EDC chief economist Stuart Bergman in the quarterly report.
Canada’s key trade woes are with the United States and China. Trump has imposed hefty tariffs on steel, aluminum, copper products, motor vehicles and parts, and lumber from Canada. Other exports that don’t comply with the Canada-U.S.-Mexico Agreement (CUSMA) face a 35 per cent tariff.
China, meanwhile, has hit Canada with tariffs on canola, pork and seafood.
In Canada, the EDC says that trade tension has meant rising unemployment and reduced business investment in machinery and equipment. That’s despite an export surge from earlier this year that was triggered largely by companies trying to stock up on supplies before the Trump tariffs kicked in. The Canadian economy has also been hit by a downturn of about 15 per cent in crude oil prices over the last 12 months.
Statistics Canada earlier this month that the national unemployment rate was unchanged in September at 7.1 per cent, after a 0.2 percentage point increase in August. Overall this year, the unemployment rate has increased by 0.5 percentage points, and is at its highest point in more than four years.
The bad news isn’t expected to subside any time soon. The EDC report also said that the Canadian economy will continue to be hampered in the medium term by structural problems such as slowing population growth, low productivity due to limited investment, and high consumer debt.
Benjamin Tal, the deputy chief economist of CIBC World Markets, said his forecasts are largely in line with the EDC’s and that the Canadian economy will be “very vulnerable” over the next three to six months. Tal said he expects the Bank of Canada will respond by lowering interest rates by 25 basis points later this month and then again by the same amount before the end of the year.
Tal said the economy’s overall direction and core strength are more important than whether it endures a technical recession, but that he doesn’t expect much economic sunlight to emerge until the second half of next year. “The economy is not strong by any sense of the imagination.”
The EDC’s gloomy forecast will only add pressure on Prime Minister Mark Carney’s government to secure a trade deal with the United States — either a broad accord that covers most of the economy or smaller, sectoral deals aimed at steel, auto, aluminum or softwood lumber — and perhaps implement policies that boost short-term growth. That same pressure will also be felt in provincial and territorial capitals throughout the country.
Since winning the federal election in April, Carney’s government has been focused largely on trying to improve structural, long-term problems within the Canadian economy. The policy thrusts to date have included upgrading infrastructure such as ports, rail and perhaps pipelines, reducing income taxes, investing heavily in defence, and eliminating the consumer portion of the carbon tax.
Opinion polls show that Canadians have warmed up to Carney’s efforts to fix structural problems within the economy but are also increasingly keen to see some more immediate results.
Other measures to boost the economy are expected in the upcoming federal budget in early November, although Tal said the government will not have an easy time finding short-term fuel that also supports long-term growth.
This EDC forecast is not the first to predict an economic slowdown in Canada this year or next.
There have been a wide variety of economic forecasts for an economic downturn, including from TD Economics, Deloitte Canada and Capital Economics. There have also been forecasts from Royal Bank, Scotiabank, the OECD and others for Canada’s economy to slow this year but not fall into recession. A recession is defined as two consecutive quarters of negative economic growth.
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