The Canadian economy ended 2024 strong. However, the escalating trade conflict is diminishing growth prospects. While tariffs are expected to increase price pressures, removing the consumer carbon tax has lowered energy prices. The unpredictability of US trade policy, and the speed and magnitude of the shifts, are making the economic outlook very uncertain.

In February and March 2025, the United States repeatedly threatened, imposed and then suspended tariffs on Canada and Mexico. Significant US tariffs remain in place, particularly on steel, aluminum and motor vehicles. Then, on April 2, the United States announced high and broad-based tariffs on nearly all its other trading partners. One week later, on April 9, it reduced most of those tariffs for 90 days to a 10% universal rate. This universal tariff does not apply to Canada and Mexico. There is a great deal of uncertainty around what will happen next.

Trade policy uncertainty is making it difficult for households, businesses and governments to plan. It is also difficult to know how the tariffs will affect the economy. Consequently, it is unusually challenging to project economic activity and consumer price index (CPI) inflation in Canada and globally.

Instead of a base-case projection, this Report contains two illustrative scenarios that consider different US trade policies. In addition, the Risks section focuses on the uncertainty related to how tariffs will impact the economy. The Bank of Canada has chosen this approach to better manage the risks in this highly uncertain environment.

https://www.bankofcanada.ca/publications/mpr/mpr-2025-04-16/