Good morning. A series of key economic reports this week is expected to underscore recent signs of momentum – but a snapshot of stability might prove fleeting in the face of looming tariffs. Today, we look at how firmly Canada is standing on the brink of an epochal economic shock.
In the news
Geopolitics: Leaders from more than a dozen countries, including Canada, have agreed to create a “coalition of the willing” to keep military aid flowing to Ukraine.
Construction: Canadian homebuilders are fearing a return to pandemic-era construction cost increases as the U.S. readies levies on steel and aluminum imports.
Deals: Industry watchers are expecting a low loonie to boost mergers and acquisitions in the Canadian software space.
Chickens on a farm in Bandirma, Turkey. The U.S. is planning to import about 420 million eggs from the transcontinental country this year. With flocks across the U.S. being decimated by the bird-flu outbreak, a dramatic drop in egg production has fuelled a rise in prices. Writing in the Wall Street Journal, U.S. Agriculture Secretary Brooke Rollins said she is planning an increase in imports from around the world as a way to keep prices down. A spokesperson for the Canadian agriculture ministry said they had not been approach. "But we’re always happy to discuss how we can support our trading partners.” Elite response.Getty Images
In focus
A reality check
For months, Canada appeared to be picking up steam. Employment growth was steady, GDP per capita had nudged upward, and consumers were opening their wallets wider. The tariffs that U.S. President Donald Trump has pledged to impose tomorrow would derail all of those trends. (Even if, as U.S. Secretary of Commerce Howard Lutnick suggested yesterday, the tariffs fall below the threatened 25-per-cent mark.)
This week, with new consumer and business data expected, analysts are eager to gauge Canada’s economic health on the precipice of what some are calling the most significant trade shock since the 1930s.
Labour pains
On Wednesday, Statistics Canada will release Canada’s fourth-quarter labour productivity data. Those words don’t easily lend themselves to clickbaity headlines, but they should have our attention. The latest data show it now takes more workers to produce the same – or even lower – output than in past decades.
In a research paper shared with clients last week, Scotiabank analysts called out the country’s chronic productivity problem, pointing to burdensome regulations, weak competitiveness and an outdated tax system as major obstacles. But the real issue, they argue, is a lack of investment in the tools that make workers more efficient – technology, training and infrastructure.
Economists warn that this problem has reached an emergency level. Without a serious course correction, Canada risks getting stuck in an endless loop of low productivity, weak growth and declining global competitiveness.
- Thursday’s trade report: Market watchers are expecting to see that export numbers rose in December, but that’s largely because companies were racing to ship ahead of the tariffs. If they’re implemented, trade reports over the coming months will make for some grim reading.
- Friday’s job-market report is shaping up to be a key test for Canada’s economic resilience. The labour market has been moving in the right direction – January saw solid job gains, and the unemployment rate has now dropped for two months in a row after peaking at 6.9 per cent in November. But the jobless rate is still nearly a full percentage point higher than it was a year ago, and businesses are starting to sweat over potential U.S. tariffs. Confidence among both businesses and consumers has taken a hit, with job postings dipping in February after climbing in December and January, RBC analysts recently wrote. The good news is that uncertainty alone hasn’t led to mass layoffs. The bad news is that it could slow hiring.
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While Trump has vowed to impose sweeping tariffs on Canadian imports, the implementation process is proving complex. The Wall Street Journal reported that the broad scope of the tariffs is causing administrative bottlenecks. Meanwhile, even Republican lawmakers are voicing concern that the measures would lead to inflation. (Economists: “Correct!”)
Trump’s erratic approach – issuing threats, walking them back, and sending mixed signals – has left trading partners guessing, Mark Rendell reports. The proposed tariffs target not only Canada and Mexico but also specific industries such as steel, aluminum, automobiles, lumber and copper. Some measures appear to be negotiation tactics, while others reflect a deeper protectionist agenda aimed at reshaping global supply chains and bolstering U.S. manufacturing.
Key dates loom: March 4 could bring 25-per-cent tariffs on Canadian and Mexican imports, while March 12 targets steel and aluminum. Canada has vowed retaliatory tariffs if Trump proceeds, risking a full-blown trade war. The situation could become even more precarious if “reciprocal” tariffs Trump has vowed materialize in April.
An election about redefining Canada
On Sunday, all of these issues will come into play as the Liberal Party chooses its next leader. The winner will become Prime Minister for a hot second before calling an election as soon as this spring. That leader will face off against Pierre Poilievre’s Conservative Party over who will lead Canada through a few thorny issues: a potential a trade war; replacing lost trade revenue from the country’s largest client; standing up to Donald Trump; and rallying Canada’s best and brightest to redefine the country’s place in a world where the U.S. is no longer a dependable trade partner. Easy stuff.
Mark Carney appears to be the front-runner, and polling suggests the Liberals are catching up with the Conservative Party. The former Bank of Canada governor is positioning himself as the economic manager Canada needs to navigate this moment. But the Conservatives still hold the lead, capitalizing on voter frustration and campaigning on deregulation, tax cuts and a more welcoming environment for businesses.
Whoever becomes Canada’s next prime minister, their window to act is closing. In their research note, the Scotiabank analysts proposed that political leaders commit to a 2-per-cent annual increase in real GDP per capita – an ambitious target that would require major regulatory reforms, increased business investment, and a renewed focus on work-force training. Without a strategic push to boost productivity, they argue, Canada’s economic struggles will only deepen.
Charted
Sudbury, here we come
Bookmarked
On our reading list
On screen: Does it feel like movies this year … were not good? I don’t know how else to put it. But Barry Hertz does in this Oscar preview, in which he outlines the forces that are dragging on the film industry.
In the bank: Blackstone’s chief executive took home north of $1-billion in 2024. That’s more than two of Canada’s largest lenders recently reported in their quarterly earnings.
Down on its luck: The Canadian dollar is in its flop era. Here’s an illustrated look at why the loonie fell.
Morning update
Global markets climbed after European leaders agreed to draw up a Ukraine peace plan and as investors waited anxiously to see if imminent U.S. tariffs would go ahead. Wall Street futures were in positive territory, and TSX futures followed sentiment higher.
Overseas, the pan-European STOXX 600 was up 0.88 per cent in morning trading. Britain’s FTSE 100 rose 0.82 per cent, Germany’s DAX gained 1.89 per cent and France’s CAC 40 advanced 1.32 per cent.
In Asia, Japan’s Nikkei closed 1.7 per cent higher, while Hong Kong’s Hang Seng climbed 0.28 per cent.
The Canadian dollar traded at 69.28 U.S. cents.