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Economic Insights from Dr. Sherry Cooper - April 1 2025
April 1, 2025 | Posted by: Matthew J. Charlton
Since Donald Trump took office, all bets are off on the Canadian economic outlook.
Most people expected more substantial growth and lower inflation as we moved into 2025. Trump’s tariffs, deregulation, attempts at massive reductions in the federal government bureaucracy and geopolitical machinations have changed everything.
VUCA is the name of the game. An acronym used initially by the US Armed Forces, VUCA stands for volatility, uncertainty, complexity, and ambiguity, and it describes the current situation to a tee. Canadian consumer confidence has fallen to its lowest level in decades. Stock markets have plummeted, the currencies are volatile, interest rates have fallen, and no one knows precisely how this will unfold.
On April 2, the US said it would impose reciprocal tariffs on countries with levies on US goods or that favour domestic producers in some way. Moreover, the president has chosen to go after Canada particularly damagingly. We are the number one supplier of steel and aluminum to the US and are now confronted with 25% tariffs. Inevitably, the economy will slow, layoffs will rise, and tariffs will be passed on to the consumer. Whether this will be a one-shot price hike or spillover into second-order effects is uncertain.
Fed Chairman Powell suggested today that inflation from tariffs will likely be transitory—suggesting that price hikes will trigger higher wage demands. Stagflation is an undesirable possibility.
Central banks do not have the tools to deal with tariff-induced stagflation. Higher interest rates might reduce inflation, but slow economic activity, and lower rates might increase price pressures. China is expected to impose retaliatory tariffs on Canadian canola oil, pork and seafood. The tariffs are push-back against Canada for imposing a 100% levy on electric cars from China and 25% on steel and aluminum.
The US is inserting disruption and disorder into a thriving trading partnership between Canada, Mexico and the US. As Jay Powell says, “It’s hard to say how this is going to work out.”
We are expecting slower growth to be dominant, brought on by VUCA. Shorter-term interest rates will fall. That, combined with more housing supply and lower home prices, should spur housing activity and bring buyers off the sidelines as we move into the Spring selling season.
Please note: The source of this article is from Sherry Cooper.
