Economic woes compounded by largest global equity market dip since COVID pandemic
Canada’s labour market took a significant hit over March, with 33,000 jobs cut over the month according to Statistics Canada, the largest monthly job loss since December 2022.
The significant decrease in employment followed months of uncertainty surrounding US President Donald Trump’s sweeping tariffs and has only been compounded as global equity markets dip to their lowest levels seen since the beginning of the COVID pandemic.
Douglas Porter suggests the labour disruption and calamitous market situation is clearly signalling a recession in Canada for the second and third quarter of 2025.
While Trump’s April 2 “Liberation Day” announcements have sent global markets tumbling, Porter says the president’s earlier tariffs on Canadian automakers, steel and aluminium were the main factor behind Canada’s economic downturn, with global equity markets simply piling on pressure to an already-weakened economy. The April 2 announcements largely spared the Canadian economy, but have shaken global markets.
“The bigger issue is the reality we're dealing with on the trade front,” said Porter, chief economist at BMO. “I think that alone was going to crimp Canadian growth in any event, because of the uncertainty it caused for businesses and for consumers. The downdraft in global equity markets is just going to further weigh on sentiment, and I think it does further increase the risk that Canada goes through it at least at least a two-quarter contraction here.”
Canadian employers have been stunned by the uncertainty surrounding Trump’s tariffs according to Porter, who says unemployment – which increased from 6.6 to 6.7 per cent in March – will only continue to climb in future months. He also suggests the Bank of Canada will continue to drop interest rates to provide protection to an increasingly fragile economy.
“I thought it was quite telling that decline in March. It does show that employers turned a lot more cautious in the late winter, probably because of the trade uncertainty,” he said. “And I think that was just really an early taste of what's to come. They're certainly not going to be any less cautious given the amped up uncertainty we've seen on the trade front, and we're actually expecting the unemployment rate to move pretty steadily higher over the next six months.”
For investors and advisors, Porter says the market’s depth of decline is taking its toll on even the most expertly crafted portfolios as the global trade conflict creeps into most sectors of the market. Paired with inflationary pressures from tariffs, he says a defensive strategy is prudent in this period of high volatility, while bonds could be a strong hedge against severe market headwinds.
“It's hard to find a good place to hide in an environment this, especially when there's some pressure on inflation from tariffs,” he said. “As much as I'd like to say this really shows the benefit of being well diversified, unfortunately, even being diversified wouldn't necessarily have helped a whole lot, at least not on a geographic or sector by sector basis. But I do think in general bonds will do a bit better in this environment.”
Porter says that if a recession does indeed hit Canada, it will happen relatively quickly. However, he also points out that Trump’s trade policies could turn on a dime at any given time, meaning a recession could be reversed as quickly as it arrives.
“We think there's still a possibility that we could pull out of it [a recession] relatively quickly if the US does back down on their very aggressive trade policies – that is possible,” he said. “Nothing is baked in the cake here, but at this point, we are assuming at least a mild recession in Canada.”
Trump’s tariffs on the automobile industry along with aluminium and steel have already taken a massive toll on Canadian manufacturing, causing mass layoffs and plummets in the industry’s stocks. But while Canada’s manufacturing sector took the biggest hit from Trump’s damaging trade policies, Porter also points to commodities as a space that is facing a challenging outlook due to last week’s “Liberation Day” announcements. According to Porter, this could severely disrupt employment in Canada’s energy and mining sectors.
“What's also happened in recent days is we've seen a very notable decline in all kinds of different commodity prices,” he said. “So mining, even energy, are potentially at some risk here because of this relates more to the broader US trade policy that's now threatening the global economy, not just Canada.”
