Economists Raise Growth Outlook for Canada as Tariff Threats Ease

Economists have upgraded Canada's 2025 economic growth forecast to 1.4% from 1.2%, citing easing trade tensions with the United States. This revised outlook, stemming from a Bloomberg survey, positions Canada's economy to potentially trail only the US among G7 nations, signaling improved confidence in its near-term performance amidst a de-escalation of tariff threats.

Analysis

Economists have materially upgraded their 2025 outlook for the Canadian economy, lifting the consensus forecast for annual GDP growth to 1.4% from 1.2% in the previous month. This revision is directly attributed to the subsiding risk of a significant trade dispute with the United States, a key source of uncertainty for the Canadian market. The updated forecast is particularly noteworthy as it positions Canada's growth to potentially be the second-fastest among Group of Seven nations, trailing only the U.S. This shift signals a meaningful improvement in the macroeconomic backdrop, reducing a major tail risk and suggesting enhanced confidence among forecasters regarding Canada's near-term economic resilience and stability.

Key Decisions for Investors

• Investors may consider increasing exposure to Canadian equities, particularly those sensitive to domestic economic performance, given the improved growth forecast and diminished trade-related risks.
• The strengthening economic outlook could provide tailwinds for the Canadian Dollar (CAD), suggesting a review of currency positions and hedging strategies may be warranted.
• It is critical to monitor for any re-escalation of U.S.-Canada trade tensions, as the optimistic forecast is highly contingent on the continued easing of these tariff threats.