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Trade war risks derailing Canada growth as BoC holds rates
Brown Brothers Harriman expects Canada’s Q2 real GDP to rise 3.4% SAAR, but warns new 50% US tariffs covering about 0.85% of Canada’s GDP could pressure the recovery and CAD rate expectations.
FXStreet, citing Brown Brothers Harriman strategist Elias Haddad, expects Canada’s Q2 real GDP to rebound strongly, with growth seen at 3.4% SAAR versus -0.1% in Q1. The projection points to gains led by domestic demand and exports, and Haddad expects the Statistics Canada advanced July estimate to provide an early read on Q3.
The outlook faces risk from the deepening US–Canada trade war, after negotiations collapsed and new 50% tariffs began on Saturday. The tariffs apply to imports worth nearly $20 billion from Canada, representing about 0.85% of Canada’s GDP, with product coverage ranging from wine to hockey sticks and cement.
Haddad said core inflation is near the 2% target, giving the Bank of Canada room to keep rates on hold to support activity. He added that this allows CAD rate expectations to adjust lower in the near term, referencing the swaps curve implying 75 bps of tightening over the next twelve months.
Canada will match the new US tariffs dollar for dollar starting September 8, with the tariff not applying to energy, potash, goods covered under Section 232, and some other categories like fish or critical minerals, according to the note.