What economists say about Canada’s GDP as tariffs loom

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Canada’s economy contracted by 0.2 per cent in November and experts warn more bad economic news could be on the way as widespread tariffs from United States President Donald Trump loom.

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Statistics Canada’s early estimates project the country’s gross domestic product (GDP) will climb 0.2 per cent in December, which would put it on track for an annualized rate of 1.8 per cent in the fourth quarter of 2024.

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Even with the bad news, economists are growing increasingly concerned that across-the-board tariffs — expected to be announced on Saturday — will drag the economy down further.

Here’s what they had to say:

Canada stumbling into tariff ‘hurdle’: CIBC

Andrew Grantham, a senior economist at CIBC Capital Markets, said the latest data shows Canada was stumbling at the end of last year and it now faces bigger issues in 2025 as tariffs loom.

“While work stoppages negatively impacted activity, particularly in transportation, momentum elsewhere seemed quite muted as well and we continue to suspect that the Bank of Canada will need to cut interest rates further to close the current slack in the economy, even if the worst-case tariff scenario is avoided,” he said in a note.

Grantham also called the 1.4 per cent growth projections for 2024 “very underwhelming given the strong population and labour force growth.”

Bank of Canada plays waiting game: TD

After trimming interest rates on Wednesday, policymakers will now wait to see what happens with tariffs before indicating what to do next, Marc Ercolao, an economist at Toronto-Dominion Bank, said.

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“The (Bank of Canada) acknowledged that past interest rate cuts are starting to boost the economy while inflation is expected to be stable at two per cent,” he said in a note. “However, future policy setting is subject to higher-than-usual uncertainties. While we think the (Bank of Canada) will step to the sidelines at their March meeting, expedited rate cuts may be in the cards should a worst-case trade war ensue.”

More rate cuts coming: Oxford Economics

Tony Stillo, director of Canada economics at Oxford Economics, said the data shows the economy has room for a few more interest cuts in early 2025.

“With ample slack in the economy and inflation at target, we expect the Bank of Canada will likely push on with three more 25 (basis point) cuts to lower the policy rate to 2.25 per cent by mid-2025,” he said in a note.

“The GST holiday and rebate cheques in Ontario will support stronger spending in early 2025, and we expect declining interest rates, improving household finances and looser mortgage lending guidelines will underpin a gradually improving economy this year.”

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Earlier this week, the Bank of Canada trimmed interest rates by 25 basis points to three per cent.

Weather, Taylor Swift ‘special factors’: BMO

Benjamin Reitzes, managing director of Canadian rates and macro strategist at the Bank of Montreal, said the 1.6 per cent pullback in commodities drove Canada’s November contraction, though the Canada Post strike and mild weather also added to the downward momentum.

“One special factor on the positive side was the Taylor Swift Eras tour boosting hospitality and arts/entertainment/recreation,” he said.

Reitzes said economists are mostly focused on the immediate future with tariffs on the horizon.

“November was soft, but there were a few special factors weighing that will reverse over the next two months,” he said. “This is all old news, though, as everyone is on Tariff Watch at the moment. That’s all that matters near term, whether we like it or not.”

Canada underperforming: RBC

Abbey Xu, a Royal Bank of Canada economist, said Statistics Canada’s GDP data reinforces the idea that more interest cuts should be on the way.

“We continue to think that the (Bank of Canada) will need to cut interest rates further to support a Canadian economy that is still underperforming other advanced economies, with the timing and magnitude of potential U.S. tariffs representing a significant additional downside economic growth risk,” she said in a note.

• Email: bcousins@postmedia.com

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