Economic impact and job losses escalate as tariff effects intensify beyond initial preparatory benefits: Deloitte
Toronto's Economic Outlook: Worries Mount Amidst Tariff Uncertainties
Ready your wallets, folks! Deloitte's economic forecast for 2025 paints a grim picture, as the fallout from tariffs starts to bite hard. The short-term gains from companies swiftly placing orders before tariffs ramp up are vanishing fast, leaving a trail of lowered investments and rising unemployment.
Dawn Desjardins, Deloitte Canada's chief economist, isn't mincing words. She predicts a modest downturn on the horizon for Canada, while loss of free-trade access to the United States would cause a more enduring setback, pushing Canadian real GDP down by an estimated three percent by 2030.
The cliffs ahead are daunting and misty, as the fog of trade policies thickens. Deloitte warns of a sharp drop in investment and rising unemployment in the near future. Canada's GDP is expected to contract by 1.1 percent in the second quarter, followed by a further 0.9 percent contraction in the third. But Desjardins is optimistic about Canada's overall growth rate, forecasting a positive 1.2 percent for the year as a whole, primarily due to the heightened activity early on.
The early rush in activity is most noticeable in areas like machinery and equipment investment, where Deloitte forecasts a whopping 30 percent jump in the first quarter, but a pretzel-twist turnaround with a 37 percent drop in the second. Business investment overall is projected to plunge by 11.5 percent in the second quarter, with construction spending also taking a hit.
Don't forget about the job cuts; they're coming too, as companies tighten their belts in response to lower investments. Unemployment is forecasted to peak at 7.5 percent in the third quarter before starting to dip below seven percent again by the next year.
The elephant in the room is the uncertainty surrounding US tariff policies and how Canada's re-elected Mark-Carney-led Liberal administration responds. Supposedly, their response is expected to focus on infrastructure spending to reposition for shifting trade patterns. But it's still blurry whether these policies will provide the right solutions.
However, Desjardins maintains a glimmer of hope. She suggests that with the right moves - focusing on productivity and diversifying trade - Canada could emerge from this crisis stronger and more resilient. In her words, "If we can capitalize on this momentum, Canada's economy may well find itself emerging from this shock stronger and more resilient." The Canadian Press first reported this story on April 30, 2025.
By the way, the federal government approving infrastructure spending projects could help bolster Canada's economy during these challenging times. It could also create opportunities for companies to invest in new technologies and improve productivity. We must remain optimistic and stay ready to adapt to the changes ahead.
Enrichment Insights:- Overall: Deloitte predicts that the implementation of U.S. tariffs will have significant impacts on Canada's economy, potential affecting GDP growth, employment levels, and business investment decisions over the short and long term.- GDP Impact: Deloitte anticipates that the GDP growth rate could decline due to tariff implementation, with the loss of free trade potentially reducing Canadian real GDP by around 3 percent by 2030.- Employment: The uncertainty surrounding tariffs is expected to lead to rising unemployment as companies adjust to new trade policies.- Business Investment: Early in 2025, there was an initial surge in investment due to companies front-loading activities ahead of tariff implementation. However, this boost is expected to fade, leading to significant declines in investment over subsequent quarters. The lack of clarity in trade policies also makes longer-term investment forecasts challenging, making it difficult for businesses to make investment decisions.
- Dawn Desjardins, Deloitte Canada's chief economist, has emphasized a modest downturn for Canada's economy, with tariffs playing a significant role in the outlook.
- Deloitte's economic forecast for 2025 suggests a sharp drop in investment and rising unemployment due to tariff uncertainties, with Canada's GDP expected to contract in the second and third quarters.
- The Canadian government's response to tariff policies could involve infrastructure spending, designed to reposition Canada for shifting trade patterns and bolster the economy.
- The government's infrastructure spending projects could create opportunities for businesses to invest in new technologies, thereby improving productivity in Canada.
- Desjardins believes that capitalizing on productivity and diversifying trade could help Canada emerge stronger and more resilient from the economic crisis caused by tariffs.
- In the long term, Canada's economy may find itself emerging stronger and more resilient if it can capitalize on momentum by focusing on productivity and diversifying trade, as suggested by Desjardins.
