Market News

Economists are trimming their estimates for Canada’s growth as the threat of a trade battle with the U.S. is seen weighing on business investment.

Canada’s economy will expand by 1.6 per cent in 2025, according to a Bloomberg survey of economists, down from 1.8 per cent in last month’s survey. Growth is expected to accelerate to 1.7 per cent next year, lower than the 1.9 per cent expansion previously forecast.

The slower growth outlook is driven by weaker business investment, which economists see rising 1.7 per cent this year, 0.6 percentage points less than last month’s median estimate. Imports and exports are also expected to grow at a slower rate than previously forecast.

U.S. President Donald Trump has repeatedly threatened to put large duties on most Canadian goods. On Feb. 1, he signed an order for 25 per cent tariffs on a majority of items from Canada with 10 per cent on energy, including oil. That action has since been put on hold until early March.

But the survey results capture the expected economic hit of Trump’s looming tariff threats — constricted trade flows and weaker investment in Canada as mounting uncertainty disrupts business optimism and puts planned outlays on hold.

During the deliberations for their Jan. 29 decision, policymakers at the Bank of Canada predicted that business confidence and investment intentions would take a hit from the increasingly unpredictable outlook for trade relations. That supported their decision to cut interest rates by 25 basis points, bringing borrowing costs to 3 per cent.

Analysts say the bank will lower borrowing costs by another quarter of a percentage point at its next meeting on March 12, according to the median survey response. Still, economists at Canada’s largest six banks are split on whether the central bank will pause its cutting cycle next month. Traders in overnight swap markets put the odds of a cut at about 25 per cent.

Economists see the benchmark overnight rate reaching 2.5 per cent — the so-called terminal rate this cycle — by June, one meeting earlier than before.

In its monetary policy report last month, the Bank of Canada also cut its forecast for economic growth to 1.8% in 2025 and 2026, down from 2.1 per cent and 2.3 per cent respectively.

Despite the weaker outlook, Canada’s economic growth is still expected to lag only the U.S. among Group of Seven countries this year.

By Erik Hertzberg and Dana Morgan