Ottawa, April 17, 2025: Canada’s central bank has sounded the alarm, warning of a looming deep recession as trade tensions with the United States escalate. The Bank of Canada held its key interest rate at 2.75 percent—the first pause after seven consecutive cuts—citing uncertainty caused by U.S. tariffs and the threat of a prolonged global trade war.
Governor Tiff Macklem acknowledged the gravity of the moment, calling it a “once-in-a-century economic shock.” He admitted the central bank could not offer reliable forecasts and instead laid out two stark scenarios. In the best-case outcome, tariffs are gradually rolled back through negotiation, leading to moderate growth and low inflation. The worst-case: a trade war that plunges Canada into a prolonged recession, with inflation spiking to 3.5 percent by mid-2026.
The central bank said second-quarter GDP could stall or even shrink, following a modest 1.8 percent growth forecast in the first quarter. Consumer confidence and business investment have already been dented. Macklem emphasized that while inflation might dip to 1.5 percent in April, the path forward remains foggy. “We still do not know what tariffs will be imposed, whether they’ll be reduced or escalated, and how long all of this will last,” he said.
Meanwhile, the economic fallout has become a defining issue ahead of Canada’s federal election on April 28. Prime Minister Mark Carney has placed economic stability at the center of his campaign, positioning himself as a steady hand in uncertain times. But Conservative leader Pierre Poilievre has seized on the crisis to call for a change in leadership, accusing Carney of prolonging policies that failed to shield Canada from economic shock.
Economists believe further rate cuts are likely if the economy worsens. For now, the Bank of Canada is staying flexible. “The message here,” said Macklem, “is we have got to be adaptable.”
