Deloitte Sees Shallow 2025 Recession, Faster Growth Once Tariff Fog Lifts

Canada is poised to dip into a modest, two-quarter recession as the tariff slug-fest with Washington drags on, Deloitte Canada warns. Export orders that were front-loaded to dodge U.S. duties have already tailed off, and manufacturing layoffs are expected to push joblessness to 7.3 per cent by autumn. Steel and aluminum, now hit with 50 per cent levies, will feel the sharpest sting if Ottawa counters with its own July tariff salvo.

Yet the consultancy notes the worst-case doom loop never materialized. Early carve-outs for CUSMA-compliant goods softened the blow, prairie energy exports are humming, and Bill C-5’s new “One Canadian Economy” regime trims interprovincial red tape just as businesses hunt safer supply chains. Even with two negative quarters, Deloitte still pegs 2025 growth at 1.1 per cent, rising to 1.6 per cent in 2026, while unemployment dips below seven per cent early next year.

The path to recovery hinges on clarity: once July’s tariff talks settle and Ottawa’s infrastructure push gains traction, Deloitte expects investment to perk up, helped by two more quarter-point rate cuts. RBC is a shade more upbeat, arguing the economy looks resilient enough to skip extra monetary easing. Either way, economists agree the trade shock has jolted Canada into long-overdue action on internal barriers and productivity-boosting projects—laying groundwork for sturdier growth beyond the present dip.