For much of 2025, Canada’s economy has felt like a car running on fumes slowing, sputtering, but never quite stalling. Now, according to a new Deloitte Canada report, it looks like the country might narrowly dodge a technical recession, defined as two straight quarters of negative GDP growth.
It’s not exactly a story of booming prosperity. As Deloitte put it, the economy will “limp along” through the third quarter, but still stay in positive territory. In other words, growth will be weak, but growth nonetheless a small win for policymakers in a year full of headwinds.
Much of Canada’s economic malaise can be traced back to south of the border. The first half of the year was rough: U.S. tariff announcements rattled consumer confidence, squeezed trade flows, and left businesses uncertain about their next move. Canada’s economy “ground to a halt,” Deloitte noted bluntly. Yet, despite the turbulence, the U.S.-Mexico-Canada Trade Agreement (USMCA) has acted as a partial shield.
While steep tariffs remain on some key exports like steel, aluminum, and automobiles up to 95 percent of Canadian exports still enjoy low or zero tariffs. That’s been a crucial lifeline for manufacturers and exporters who might otherwise have faced deeper losses.
Still, the strain is real. The United States has slapped 50 percent tariffs on metals such as steel, aluminum, and copper, 25 percent on vehicles and parts, and a hefty 35 percent on goods not protected by the USMCA. And with President Donald Trump hinting at even more tariffs on pharmaceuticals, semiconductors, and furniture, businesses are bracing for another round of shocks.
Domestically, the consumer side tells a mixed story. Spending held up reasonably well in the second quarter, but Deloitte expects it to cool off in the months ahead. Slower immigration a recent trend will also dampen labour force growth, though unemployment isn’t expected to spike much beyond August’s 7.1 percent.
Inflation, meanwhile, hovers at around 3 percent still within the Bank of Canada’s target range, though on the higher end. Interestingly, despite all the tariff drama, consumer prices haven’t surged as many feared. Ottawa’s decision to remove counter-tariffs appears to be cushioning the blow, easing some inflationary pressure.
That gives the central bank some room to maneuver. Deloitte’s chief economist, Dawn Desjardins, expects the Bank of Canada to continue trimming rates in 2025, from 2.5 percent to 2.25 percent, in an effort to keep growth alive.
The numbers offer cautious optimism. After a 1.6 percent annualized GDP contraction in the second quarter, Deloitte forecasts modest rebounds: 1.2 percent growth in Q3 and 1.5 percent in Q4. If those predictions hold, the country will finish the year bruised but not broken.
Even the Parliamentary Budget Officer shares that view. Its September projections suggest “very moderate growth” for 2025 and 2026, with real GDP rising 1.2 percent and 1.3 percent respectively.
To be clear, avoiding a recession doesn’t mean avoiding pain. Growth below potential means continued pressure on businesses, slower job creation, and weaker consumer confidence. But in a year where global trade tensions and sluggish demand have become the new normal, “limping along” might be the best outcome Canada could hope for.
In the end, Canada’s economic resilience in 2025 may not come from strength but from sheer endurance. Sometimes, staying on your feet is victory enough.
