Bank of Canada Governor Warns U.S. Tariffs Could Halve Q4 Economic Growth
Bank of Canada Governor Tiff Macklem stated that persistent U.S. trade tariffs could reduce fourth-quarter economic growth to below 1 per cent, while Middle East conflicts threaten to keep inflation near the central bank's upper target range.
Bank of Canada Governor Tiff Macklem has issued a stark warning regarding the Canadian economy’s outlook, citing escalating uncertainty in U.S. trade policy and renewed conflict in the Middle East as significant risks. Speaking at an event hosted by the Halifax Partnership on Monday, Macklem emphasized that these external pressures are heightening business uncertainty and complicating the central bank’s mandate.
The core of Macklem’s concern lies in the potential impact of new U.S. tariffs. He warned that if the current measures remain in place, Canadian economic growth in the fourth quarter could be roughly halved, falling to below 1 per cent. This projection stands in sharp contrast to the second quarter’s performance, where the economy grew at an annualized rate of 3.3 per cent—the fastest pace since early 2023. During that period, non-energy exports rose at an annualized rate of 14.5 per cent, and business investment increased by 8.8 per cent.
The latest U.S. measures include 50-per-cent tariffs on approximately $28-billion worth of Canadian goods, bans on certain imports, and an executive order from President Trump renaming Lake Ontario as "Lake America." Macklem noted that businesses have already begun adjusting supply chains and sourcing strategies to mitigate tariff exposure, but the unpredictability of U.S. policy continues to delay investment and hiring decisions.
Beyond trade, the Bank of Governor is grappling with inflationary pressures stemming from global energy markets. Statistics Canada reported that the annual inflation rate held steady at 3 per cent in August, matching July’s figure and sitting at the top end of the Bank of Canada’s target range. Macklem indicated that if global oil prices remain near US$100 per barrel due to disruptions in the Middle East—including damaged refineries and interrupted shipping routes—inflation is expected to edge up in the coming months.
In response to these mixed signals, the Bank of Canada kept its key interest rate on hold at 2.25 per cent earlier this month. However, market expectations have shifted, with some analysts now anticipating a potential rate hike sooner than previously thought as the central bank navigates the dual challenges of slowing growth and persistent price pressures.