Canada's economy may shrink in the second quarter, but a recovery could begin if tariffs are lifted by July 1
The Conference Board of Canada forecasts a period of economic disruption as trade tensions between Canada and the United States lead to job losses and declining exports.
According to a report covered by BNN Bloomberg, the Canadian economy is expected to shrink in the second quarter of 2025, with the impact largely dependent on how long tariffs remain in place.
Projected job losses and economic contraction
The Conference Board estimates that up to 160,000 jobs could be lost in the second quarter, raising the unemployment rate to 7.3%.
Economic output is expected to contract at an annualized rate of 5.4% during this period, with trade-dependent industries experiencing the sharpest declines.
The report highlights that tariffs could result in real exports falling by one-third, with the automotive sector particularly affected, facing a drop of over 50% in exports.
Potential for recovery if tariffs are lifted
The economic downturn is expected to have consequences for both Canada and the United States.
BNN Bloomberg reports that the US economy is also projected to shrink in the second quarter.
The Conference Board forecasts that if tariffs are removed by July 1, a recovery could begin in the third quarter of 2025. Under this scenario, employment levels could return to pre-tariff conditions by the fourth quarter.
However, the 2025 GDP growth forecast has been revised downward to 0.9%, compared to an earlier estimate of 1.5%, before the tariff measures were introduced.
The report indicates that manufacturing will experience a slower recovery than other sectors. As uncertainty around trade policies persists, companies in the sector may delay expansion and hiring decisions.
BNN Bloomberg notes that about half of the projected job losses are expected in manufacturing, with the industry facing challenges that could extend beyond 2025.
In addition to trade-related disruptions, demographic shifts are expected to influence Canada’s labor market.
The Conference Board projects that lower immigration and an aging workforce will contribute to a shrinking labor pool. As a result, the unemployment rate could decline to 6.1% by 2026 and 5.4% by 2029.
Despite short-term challenges, the Conference Board maintains a stable outlook for long-term economic growth. GDP is projected to grow by 1.9% in 2026, followed by 2.1% in 2027, and 2.2% in both 2028 and 2029, forecasts that remain in line with previous projections.
According to BNN Bloomberg, these figures suggest that while near-term disruptions are expected, Canada’s economy is positioned to regain stability in the coming years.
