Deloitte projects meaningful tariff impacts across the economy. Low business confidence should slow investment and job growth, and drive the unemployment rate above seven per cent, the outlook says. (Photo by Bill Pugliano\/Getty Images) \u00b7 Bill Pugliano via Getty Images <\/p>\n
The \u201cextremely uncertain economic operating environment\u201d defined by U.S. President Donald Trump\u2019s trade policies will have broad fallout for Canadians, but it has also created momentum for positive change, the latest economic outlook from consulting firm Deloitte says.<\/p>\n
\u201cIt’s actually a way that we see forward now, and because we’ve had this prod from all of the very aggressive language coming towards us, it does seem that now is a bit of a moment,\u201d Deloitte chief economist Dawn Desjardins told Yahoo Finance Canada in an interview.<\/p>\n
\u201cSome things change on the margin, but it does feel a bit different, I have to say, compared to other times when people were talking up policy changes that may or may not occur.\u201d<\/p>\n
The Deloitte report, published Wednesday morning, projects significant impacts on labour, consumer spending, business investment, imports and exports, and monetary and fiscal policy as a result of the trade war<\/a>. At the same time, it notes that Canada has thus far seen more favourable tariffs than most other countries.<\/p>\n \u201cIn an unexpected way, we might have a little bit of an advantage,\u201d Desjardins said. \u201cBecause you didn’t feel that, certainly, at the beginning of the year. It did not feel like it was going to be Canada\u201d that suffered less.<\/p>\n Deloitte currently projects a “modest downturn” in the second and third quarters of this year. It expects GDP growth<\/a> of 1.2 per cent in 2025, down from around two per cent in its previous, pre-tariff outlook \u2014 but the report points out that deep uncertainty about nearly everything in the trade war makes a single projection less meaningful. For example, an elimination of the current tariff exemption for goods covered by the Canada\u2013U.S.\u2013Mexico Agreement would mean \u201cCanada\u2019s real GDP would be permanently lower by around three per cent by 2030,\u201d the outlook says.<\/p>\n \u201cWith such a wide range of potential outcomes and a lack of clarity on the path forward, a natural response is to develop guidelines to evaluate the implications of tariffs as the situation evolves,\u201d Desjardins wrote in a foreword to the outlook. The key tariff factors to watch are their \u201csize, product coverage, country coverage and retaliatory measures,\u201d she adds.<\/p>\n In an unexpected way, we might have a little bit of an advantage.Dawn Desjardins, Deloitte chief economist<\/p>\n<\/blockquote>\n For now, Deloitte is projecting meaningful tariff impacts across the economy. Low business confidence should slow investment and job growth, and drive the unemployment rate above seven per cent, the outlook says \u2014 with the rate projected to reach 7.5 per cent in the third quarter of this year. Consumers will likely spend less, the outlook adds, though they may spend more on Canadian goods. Housing starts and renovations should slow, and home sales should remain sluggish<\/a>.<\/p>\n Story Continues <\/p>\n As for inflation, Deloitte expects the rate to approach three per cent despite slowing growth, \u201cand slowly decelerate back to two per cent towards the end of next year.\u201d The outlook projects the Bank of Canada\u2019s overnight rate<\/a> dropping to two per cent in the third quarter of 2025.<\/p>\n An unintended and unexpected consequence of the trade war is that it may end up as \u201cthe catalyst for much needed change,\u201d Deloitte\u2019s outlook says. The report outlines several factors that combine to create a \u201crare opportunity for upside,\u201d highlighting a \u201crallying\u201d of Canadians and a shift in political will. The Canadian public\u2019s unprecedented interest in interprovincial trade barriers<\/a> and productivity is evidence of a shift, Desjardins says.<\/p>\n \u201cPeople are talking about things and saying, \u2018OK, that’s inhibiting us as a country. We thought we had a reliable partner, we don’t. So shouldn’t we be looking a little bit more east\u2013west?\u2019\u201d she said.<\/p>\n “It will take a lot of will, but I think the tone has changed so that Canadians and businesses are talking about it now.\u201d<\/p>\n Desjardins describes interprovincial free trade as a logical first step and \u201can important signal that we’re now in a different headspace across this country.\u201d The outlook says Canadian businesses and governments must make investments to boost productivity, and also focus on diversifying markets away from the U.S., describing such efforts as \u201ca must to thrive in the new world order.\u201d Simplifying permits, regulations and taxation systems will also help encourage entrepreneurs and foster growth, the report says.<\/p>\n Deloitte\u2019s suggestions amount to \u201ca beautiful list,\u201d but remain ambitious even as public momentum builds, Desjardins acknowledges. \u201cI’m not saying that they’re all going to happen. But even if we can get some of it to happen, it is going to make us more resilient.\u201d<\/p>\n John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf<\/a>.<\/p>\n Download the Yahoo Finance app, available for Apple<\/a> and Android<\/a>.<\/p>\n \n