Canada: Growth rebound overshadowed by trade war – BBH

FXStreet Insights Team FXStreet

Brown Brothers Harriman’s (BBH) Elias Haddad expects Canada’s Q2 Real GDP to rebound strongly, outpacing the Bank of Canada’s (BoC) projection, with domestic demand and exports driving gains. However, the deepening US–Canada trade war and new 50% tariffs on about 0.85% of Canada’s GDP threaten this recovery. Haddad notes core inflation near target allows the BoC to hold rates, implying downside adjustment in CAD rate expectations.

Q2 GDP rebound faces tariff risks

"Canada’s economy is expected to recover in Q2 boosted by domestic demand and exports (Friday). Real GDP is seen rising 3.4% SAAR vs. -0.1% in Q1, which would be stronger than the Bank of Canada’s (BOC) 2.5% projection. Statistics Canada’s advanced July GDP estimate will also offer an early read on Q3."

"However, the worsening US-Canada trade war risk derailing the growth rebound. Tade talks between the two countries collapsed on Friday, triggering a fresh round of tariffs. 50% tariffs on nearly $20 billion in imports from Canada (0.85% of Canada’s GDP) kicked in on Saturday."

"The tariff applies to a range of products from wine to hockey sticks to cement. The tariff does not apply to energy, potash, products subject to tariffs under Section 232, and other goods like fish or critical minerals. Canada will match the new US tariffs dollar for dollar from September 8."

"Encouragingly, the BoC can afford to keep rates on hold to support economic activity because core inflation remains close to the 2% target. As such, there is room for the swaps curve (which implies 75bps of tightening in the next twelve months) to adjust lower against CAD in the near term."

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

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