Canada's economy is facing turbulent times as uncertainty stemming from trade tensions and disappointing job growth leads economists to anticipate significant changes. With only 1,100 jobs added in February 2025, far below the expected 20,000, fears of economic slowdown hang over the nation. This news arrives as the Bank of Canada prepares to meet on March 12, 2025, where many predict it will cut the interest rate by 25 basis points to 2.75 percent.
Among those voicing concerns is Avery Shenfeld, chief economist at CIBC Capital Markets, who asserts, "Monetary policy, and its singular instrument, interest rates, can't be a cure-all for the trade risks... But like chicken soup for a cold, it couldn't hurt either, and might make some corners of the economy feel a little bit of relief." While underlying economic indicators suggest resilience—such as past GDP growth—the looming trade war has cast uncertainty over business investment.
The downward pressure from potential U.S. tariffs could have dire consequences. U.S. President Donald Trump recently embarked on another round of tariffs, which economists warn could see Canada's GDP shrink and unemployment rise if reinstated.
“If 25-percent tariffs are reinstated, Canada’s GDP will shrink,” said Shenfeld, emphasizing the dual threat to employment and economic growth. On March 7, 2025, the Canadian government announced aid packages for those impacted by existing tariffs, which could buffer some immediate effects. Yet, larger support initiatives risk getting delayed due to the upcoming federal election.
The anticipated interest rate cut reflects market conditions along with sluggish employment data. The recent job gains, or lack thereof, are said to hint at potential stalling due to tariff uncertainty. The unemployment rate held steady at 6.6 percent, as the economy’s total hours worked fell by 1.3 percent—the largest decline since April 2022. “February’s stall... is likely the first crack caused by tariff uncertainty,” noted Andrew Grantham of CIBC Capital Markets.
While retail and wholesale sectors saw gains, other areas like professional services suffered, with jobs decreasing by 1.6 percent, and transportation and warehousing following with declines of 2.1 percent.
Weather conditions also contributed to workforce disruptions, with 429,000 Canadians losing hours due to severe snowstorms affecting Central and Eastern regions of the country, marking the month as difficult for hiring.
David Rosenberg, founder of Rosenberg Research & Associates, pointed out the shifting probabilities of rate cuts. “Bank of Canada rate cut odds for next week’s meeting have gone from 50 percent last week, to 76 percent yesterday, to 85 percent now,” he stated, noting the rising urgency felt among economists.
Indeed, Canada’s manufacturing industry is showing cracks. Though Ontario bucked the national trend by adding 10,800 manufacturing jobs, the overall industry lost 4,800 positions, highlighting significant disparities and vulnerabilities within employment sectors. Further, job postings within manufacturing fell by 7 percent, indicating potential slowdowns moving forward.
The trade war, coupled with weak job growth and economic uncertainty, could deter business investments, raising fears of tightening economic conditions. Royal Bank of Canada economists Nathan Janzen and Claire Fan articulated, “What U.S. trade policy will look like week-by-week is still highly uncertain. This uncertainty is threatening to choke off recovery.” Meanwhile, federal plans to mitigate the impact of tariffs may be pressed for urgency as policymakers assess the influx of economic challenges.
The looming question remains: Will interest rate cuts suffice to sustain economic momentum? While some believe it might cushion the blow, others highlight the deep-rooted issues tied to trade tensions.
Regardless of the decisions made by central banks, it seems clear: Canada faces challenging times. How officials will navigate the tension between economic risks and global trade pressures remains to be seen as the nation approaches pivotal moments both politically and economically. The fate of many industries hangs by threads, woven through the uncertainty of tariffs, employment numbers, and central bank actions.