Reports paint grim picture of how a recession will impact Canada

Economists at yet another big global firm are sounding the alarm about the Canadian economy, warning of a forthcoming recession that will hit provinces like Ontario the hardest.

Just days after Wells Fargo forecasted that the Great White North will fall into a recession sometime this year — news that was bolstered by a Financial Accountability Office (FAO) report saying Ontario in particular should prepare for a downturn — another big player in the financial services sector has released a similarly distressing economic outlook.

Deloitte Canada is warning citizens that a further decline in GDP growth, "significant" downward economic pressure and "really soft economic activity" are on the way in 2025, with the next six to eight months looking particularly bad in the shadow of the U.S. tariffs that first kicked off in March.

Along with a depletion of both exports and imports, especially in the manufacturing sector, the levies will have the effect of eroding people's confidence, leading to less investment and consumer spending across the board. These ramifications started soon after the tariffs were announced, though they were already being felt amid the preceding cost-of-living crisis and economic slump.

Just like the FAO report, Deloitte is predicting sizeable job losses and a resulting increase in the national unemployment rate, pushing it over 7 per cent. A "modest recession" will come into play by the second quarter of the year, the firm says.

Like the other reports, Deloitte's sees the nation's real GDP growth and economic momentum dwindling in 2025 and 2026, pushing into the negatives in Q2 (-1.1 per cent) and Q3 (0.9 per cent). 

Deloitte

It also breaks down how badly growth will slow across different provinces.

While Alberta and Newfoundland should fare the best, with real annual GDP growth  sitting at around 1.7 per cent by year's end, Ontario is on the other end of the spectrum, anticipated to experience a mere 0.7 per cent in growth despite being home to the most people and most new residents.

Only New Brunswick and Quebec are slated to do worse economically, with growth rates of 0.6 per cent.

Deloitte

How bad things will end up, though, depends on Trump's next moves, with a "wide range of potential outcomes and a lack of clarity on the path forward" complicating things and making estimations difficult, the report says.

But all can agree that there will be some unavoidable degree of economic fallout from the levies, especially on top of an already weakened economy and dollar.

And, while Deloitte's executives outline some potential silver linings, such as diversifying trade and shifting more to made-in-Canada products, things have the potential to become pretty ugly.

"It is a real possibility that the current Canada-United States-Mexico Agreement (CUSMA) carve out is eliminated, resulting in Canadian products losing their preferential access to the important U.S. market. In this scenario, economic conditions deteriorate in the near-term... with the economy facing broad-based rather than isolated industry weakness," the team writes.

They then paint a particularly devastating worst-case situation in which Canada's real GDP "would permanently lower by around 3 per cent by 2030" if CUSMA is revised or terminated. (Experts say the U.S. President's tariff actions thus far have already "blown a complete hole" in the agreement, mind you.)

Still, the outlook tries its best to end on a note of positivity, fairly pointing out that "for years we have been discussing the issue of Canada's poor productivity and the consequences that has on our standard of living and longer-term growth prospects. The tariff crisis may be the catalyst for much-needed change."