Canada: Fragile economy under trade and energy strain – Rabobank

Rabobank describes Canada’s economy as fragile, with back-to-back quarterly contractions marking a technical recession and weak investment and trade dragging growth. Elevated gasoline prices risk demand destruction, while US tariffs and USMCA uncertainty weigh on business and consumer confidence, limiting the effectiveness of Bank of Canada policy in countering externally driven shocks.

Technical recession and weak investment

"Elevated gasoline prices means that the risk of demand destruction due to present inflation is high. This puts Canada in an especially precarious position given the recent GDP print, which registered contraction at -0.1% quarterly annualized."

"Poor investment has dragged down growth and there aren’t promising signs at this juncture to suggest that we’re seeing a dramatic turnaround in Q2. Meanwhile, the trade balance also supressed growth, as exports contracted by -0.5% and imports increased from 2% in Q4 of last year to 12% in Q1—the greatest increase since 2022."

"The Q1 print is concerning as it came after a contractionary print of -1.0% in the previous quarter—marking a technical recession. Several Canadian policymakers have brushed off this most recent activity print, with Mark Carney saying that the Canadian government has “been in the process of laying the foundations for a stronger, more resilient, more independent Canadian economy."

"We continue to expect the Canadian economy to grow modestly as it adjusts to US tariffs and trade policy uncertainty, but recent data suggest that near-term economic growth will be weaker than anticipated in January."

"The Bank’s April forecast projects GDP growth of 1.2% in 2026, rising to 1.6% in 2027 and 1.7% in 2028 as growth in exports and business investment resumes along a lower trajectory."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)