Although Canada’s economy surprised everyone by growing 2.6 per cent in the fourth quarter, President Donald Trump’s promise to apply devastating import taxes next week casts a pall of worry over the nation.
The gains above the 1% growth recorded in the third quarter of 2024, according to Statistics Canada, and were driven by increases in household consumption, business investment, and exports.
Following a hike in borrowing costs to control inflation, Canada was the first G7 economy to start lowering interest rates last year.
“As it responded to lower interest rates, Canada’s economy showed some evident sparks of life in the final quarter of 2024,” CIBC economics wrote in a commentary on the most recent GDP figures.
“But that flame could still be extinguished in 2025 if the country faces a tariff wall,” CIBC stated.
This month, Trump threatened to impose a 25 per cent tax on Canadian and Mexican imports due to illegal immigration and the deadly drug fentanyl. Later, he decided to cut the cost for Canadian energy.
On social media Thursday, Trump stated that the proposed tariffs will proceed as planned until the fentanyl problem ceases “or is seriously limited.” However, the month-long pause ends on March 4.
Credit: Reuters
– ‘Extremely tenuous’ situation –
On Thursday, Canadian Prime Minister Justin Trudeau declared that his country was “working day and night” to avoid Trump’s tariffs.
But if the restrictions are implemented on Tuesday, he claimed, Canada will retaliate, increasing the likelihood of a trade war.
The market’s response to the “surprising” statistics should be restrained, according to Royce Mendes of Desjardins, even if Canada’s economic performance “surpassed all expectations”—the majority of analysts had projected 1.7 per cent growth in the fourth quarter.
“The situation is extremely tenuous, with the possible imposition of US tariffs on Canadian goods as early as next week,” Mendes said.
Mendes also pointed out that a tax exemption on specific products over the Christmas season, which Trudeau instituted to give Canadians greater purchasing flexibility during the holidays, was responsible for the increase in household spending.
Chystia Freeland, Trudeau’s former finance minister, vehemently opposed the policy, accusing him of using it as a vote-winning ploy rather than strengthening Canada’s finances in anticipation of a potential trade war.
Trudeau’s resignation was mostly attributed to Freeland’s abrupt resignation in December, which she partially attributed to the tax break.
Trudeau has stated that he will step down as prime minister once his Liberal Party selects a new leader in a ballot scheduled for March 9.
