By TD Economics

• Despite all the twists and turns in U.S. trade policy, our forecast for the global economy is broadly unchanged from our June view.
• Ditto for the U.S. economy, at least on the surface. Consumers have pulled back as the labor market has cooled, but that has been offset by strong business investment. The Fed is expected to cut interest rates further to support the labor market that has cooled further than previously believed.
• Canada’s exports have been hit hard by U.S. tariffs, but consumer spending has shown surprising resilience buoyed in part by a pull-forward in auto purchases and in the face of tariffs. Interest rate cuts have contributed to an uptick in housing activity broadly but are no panacea for the structural headwinds that will continue to weigh on Canada’s economy.

Economists are still suffering from whiplash following the twists and turns of U.S. trade policy. But despite all the back and forth, our forecast for the global economy is broadly unchanged from our view in June. Global growth is on track to advance 3.1% this year, with a slight slowdown in the cards for 2026. In the euro area, GDP rose at a 0.4% annualized pace in Q2, slightly above expectations but sharply slower than the 2.4% pace in Q1. China expanded 5.2% year-on-year in Q2, stronger than forecast, though weak credit growth and continued property stress point to softer momentum in the second half. Japan’s economy grew at a 1.0% annualized rate, beating expectations.

On the trade front, risks have eased for now: the U.S. capped tariffs on the EU at 15% in July, the U.S. extended their truce with China and Mexico in August for 90 days, and the U.S. and Japan reached a limited accord preserving market access. Yet frictions persist, with China imposing new duties on European agricultural goods, and there remains considerable uncertainty around the direction of trade policy once temporary truces expire and if the U.S. Supreme Court rules against the legality of IEEPA tariffs. Front running leading up to President Trump’s reciprocal tariff deadline, originally set for July but subsequently delayed, led to a pull-forward of industrial output and inventory builds. This will likely result in a choppy pace of growth across both advanced and emerging markets depending on trade exposures. The result is a global economy that continues to advance on average, but at an unspectacular pace with divergence among countries. This modest pace is supported by domestic demand and services but constrained by weak goods trade and unsettled policy risks.

https://economics.td.com/ca-quarterly-economic-forecast