Deloitte’s latest economic outlook sees the pain of tariffs gathering pace in the months ahead as the short-term boost from companies front-loading activity fades.
The firm says the uncertainty from trade policies, and the efforts by companies to get orders in before tariffs hit, mean a sharp drop in investment and rising unemployment.
Deloitte Canada chief economist Dawn Desjardins says a modest downturn is ahead for Canada, while a loss of free-trade access to the United States would create a more permanent hit, reducing Canadian real GDP by around three per cent by 2030.
The firm emphasizes how little clarity there is going forward, making longer-term forecasts difficult, but in the near-term, it sees Canada’s GDP shrinking 1.1 per cent in the second quarter, then a further 0.9 per cent in the third quarter.
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It says Canada should still have positive growth of 1.2 per cent for 2025 as a whole given the heightened activity early in the year.
The early run-up in activity can be seen especially in areas like machinery and equipment investment, where Deloitte forecasts a 30 per cent year-over-year jump in the first quarter, but a 37 per cent drop in the second.
Overall business investment is expected to see an 11.5 per cent drop in the second quarter, as areas like construction also pull back.
Lower investments and business caution will also mean job cutbacks.
Deloitte sees unemployment peaking at 7.5 per cent in the third quarter before starting to trend back under seven per cent next year.
Along with uncertainty over U.S. tariff policies is how Canada’s re-elected Mark-Carney-led Liberal government will respond, though Deloitte says supports are expected to focus on infrastructure spending to prepare for shifting trade patterns.
It’s also not clear yet how well the policies will work, but Desjardins says there is the potential that growth could be stronger than expected by focusing on productivity and diversifying trade.
“If we can capitalize on this momentum, Canada’s economy may well find itself emerging from this shock stronger and more resilient,” she said.
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