• We’ve slashed our real GDP growth forecasts for this year from coast-to-coast, reflecting the impact of the Canada-U.S. trade war. Solid Q1 activity across regions will buffer annual averages, but we foresee a mild recession unfolding for Canada in the middle-part of this year.
• Our forecast assumes that Canada’s exports to the U.S. will face a 12.5% effective tariff rate for six months, lowered to 5% in Q4-2025 and held there through the projection horizon. We expect Canada to retaliate with their $155 billion package over the next two quarters before paring back to $30 billion.   
• Across provinces, Quebec and Ontario are especially exposed to tariff risks given their outsized manufacturing sectors. However, Quebec’s public sector is also quite large, and is less directly exposed. New Brunswick, meanwhile, is heavily reliant on the U.S. as an export destination. On the flipside, U.S.-bound shipments make up only a small share of GDP in Nova Scotia and B.C., while a lower 10% tariff on energy exports will likely soften the blow in Alberta’s case.   
• The commodities backdrop, especially crude oil, is softening due to the prospect of slowing global demand growth. WTI prices have been revised lower, impacting profitability and investment in key resource-producing provinces.   
• Our forecast builds in assumed support from government stimulus. So far, we’ve received budgets from Nova Scotia, B.C., and Alberta. For the most part, growth-supporting efforts have focused on infrastructure spending and allocating funds for trade-war related contingencies. Alberta, however, will roll out a sizeable tax cut for households this year. Provinces are also retaliating to through various measures, including the elimination of U.S. alcohol purchases.
• We’ve downgraded our annual average housing forecasts for nearly every province this year (Newfoundland and Labrador gets a reprieve given solid momentum heading into 2025). Q1-25 performances were weak across most provinces. Part of this can be traced to severe winter storms in February, although tariff-related economic uncertainty is probably weighing. A subdued performance is likely in the cards for the bulk of 2025, before an improving jobs market, pent-up demand and waning uncertainty drives a better outcome in 2026.  

For more details on our national forecast see our Quarterly Economic Forecast

British Columbia

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B.C.’s economic expansion is set to accelerate slightly in 2025 on the heels of last year’s tepid growth performance. Our projection for 1.7% real GDP growth this year is still below the province’s historical average track record, but we do see it as one of the better performing jurisdictions in the year ahead. 

Within the household sector, the combination of rising incomes, spending restraint, and falling interest rates has helped to ease some of the pressure from lofty debt levels.  Consumers have responded by ramping up retail outlays (Chart 1), a trend we expect to continue as interest rates fall further. Spending on food and beverages has also turned sharply higher. Although domestic consumers have likely led the charge, tourism activity has also picked up, as evidenced in recent international visitor growth. The tourism sector in B.C. accounts for over 3% of GDP, more than any other province, and remains a near-term bright spot with continued support from a weaker loonie as well as more Canadians that are likely to opt to spend their tourist dollars at home.

While not immune to tariffs, B.C.’s economy appears better positioned to absorb the impact of the trade war. For one, U.S shipments account for a relatively small 8% of nominal GDP. The province also benefits from greater trade partner diversity, with 45% of exports heading to non-U.S. trading partners, compared to the roughly 25% national average (Chart 2). We do expect some localized weakness, especially in the lumber industry, which could face devastating new tariffs on top of the current 15% anti-dumping and countervailing duties. In contrast, the natural gas sector is a relative bright spot amid a healthy pricing environment as well as the anticipated start-up of LNG Canada. 

Escalating tariff risks may hamper an already dim outlook for non-residential investment, especially as many large-scale projects wind down. On the residential side, a subdued outlook for housing demand will weigh on construction investment in 2025. However, 2026 prospects are more promising given the combination of pent-up demand and dissipating uncertainty.

In its recently released 2025 Budget, the government pressed ahead with some modest new spending initiatives as well as infrastructure investments.  The outlook for further sharp increases in the government’s debt-to-GDP ratio is creating some vulnerability to negative shocks, contingencies imbedded in the Budget should help mitigate the risk of even larger fiscal deterioration.   

Alberta

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We expect Alberta’s economy to fare better than most other regions this year, partly reflecting the benefit of a decent growth hand-off from 2024.  As expected, the Transmountain Pipeline Expansion (TMX) has been a boon for the oil sector, with production rising by almost 5% last year to a record level of 4 million/bpd.  This momentum bodes well for the sector, especially as producers signal plans to continue increasing output – despite tariff threats – while also seeking to expand market access beyond the U.S. More broadly, Canadian energy products, led by Alberta, were the biggest contributors to total export volumes in 2024 (Chart 1).

Our forecast assumption of a 10% tariff on energy exports for 6 months will likely weigh on activity and jobs in the oilpatch, but only moderately.  In the absence of readily available substitutes for Canadian oil, we don’t expect the U.S. to materially scale back its imports of Alberta oil, while U.S. refiners and a lower Canadian dollar absorb some of the tariff impacts. Perhaps the greater near-term risk is on the global oil price outlook, where two major events – the unwinding of OPEC supply cuts beginning in April and the escalating global trade war — are pressuring oil prices lower.  As a result, we have downgraded our WTI oil price forecast to $67/bbl in 2025.

Like all provinces, Alberta’s unemployment rate is set to rise, though we expect the increase to be less pronounced than other provinces (Chart 2). Population growth is still expected to clock in at a robust +2% in 2025, which will continue to support hiring and spending. Given economic uncertainties, consumers will likely remain cautious, especially as inflation in the province runs hotter than other jurisdictions (averaging 2.6% y/y in Alberta over the last six months). However, lower interest rates and a slimmer debt burden for households should be a net positive for consumption growth this year.

In its recently released 2025 Budget, the government prudently incorporated trade shocks into its base-case scenario while building in $4 billion annual contingencies for the next three years. A material hit to projected near-term revenues puts the province on track to record a string of deficits after successive years in black ink. Despite their negative impact on the deficit, Alberta’s fiscal position remains the most favourable among provinces and the newly implemented income tax cut should provide offsetting stimulus if U.S. trade policy actions (or other downside risks) materialize.

Saskatchewan

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Over the last three years, Saskatchewan’s economy has been a provincial outperformer.  But this year could see an end to that streak, as real GDP growth likely slows to a pace in line with the national-average.  Most domestic markers of activity are showing solid momentum to start the year, but the province’s greater-than-average external orientation faces heightened risks. 

The comparative good news is that key energy and potash exports will face a lower 10% U.S. tariff rate that should dampen the export blow somewhat. On the latter, the U.S. imports around 75% of its total potash needs from Saskatchewan, with few reliable substitutes. Indeed, when adjusted for the relative export mixes, Saskatchewan’s overall effective tariff rate is expected to be at the low end among the provinces (Chart 1). On the flipside, crop exporters are battling another front in the trade war, with China recently announcing the imposition of a 100% tariff on Canadian canola oil exports starting March 20th. In 2019, when China imposed an export ban on two of Saskatchewan’s major canola producers, exports of the commodity tumbled by about 50%, which subtracted as much as 0.5 ppts to real GDP growth that year. 

Elsewhere on the goods side, uranium production is expected to scale up this year, partially offsetting the drag from the oil sector, where total production in 2025 is likely to remain flat for a third straight year. 

Saskatchewan’s labour market has continued to churn out decent job gains to start the year, especially within public services. Employment growth will likely slow from last year’s 2.6% gain, but we still expect Saskatchewan to boast the lowest unemployment rate across provinces (at 5.7%) in 2025 on average. A combination of falling interest rates and a healthy near-term labour market outlook supported a pickup in consumer demand to cap off 2024, with continued expansion expected over the near term.  

Saskatchewan will table their 2025 Budget this week. The provincial government has the second-lowest net debt burden across jurisdictions, which means more room to provide support in the event that downside growth risks materialize. In that vein, 2025 data on capital spending intentions pointed to a third consecutive year of double-digit growth in public sector outlays (Chart 2), keeping a tailwind in the sails of the recently-thriving construction sector. 

Manitoba

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2025 is shaping up to be yet another year of modest growth for Manitoba, which has been plagued by mediocre outturns since 2021. The forecast could have been even weaker had the economy not been carrying decent momentum heading into the trade war. For instance, retail spending growth was accelerating into 2025 (Chart 1), lifted by falling interest rates, government stimulus measures and low inflation. The latter has turned around more recently however, as Manitoba’s previously suspended fuel tax was re-instated (albeit at a lower rate), supporting the 1.6 ppt jump in inflation in January. Note that Manitoba also counts on the U.S. for a relatively large share of its international imports, exposing households to inflation risk from retaliatory tariffs.  

Exports surged in January, as companies stockpiled inventories ahead of tariffs. And, this factor could continue lifting exports in the very near-term. However, this boost will likely reverse itself in the second quarter and Manitoba’s large and diversified manufacturing industry is facing steep headwinds from the Canada-U.S. trade war. Indeed, some 75% of Manitoba’s international shipments are destined for the U.S. (Chart 2) and cover products such as canola, oil, transportation equipment, and medicine. 

The on-going revitalization of the Port of Churchill offers some hope in terms of export diversification towards Europe, and plans call for a doubling of the critical minerals shipped through the port this year. Still, exports to the European Union only accounted for 3% of total international shipments in 2024.

The province ships some 55% of its exports to other provinces - the largest share in the country.  Probable growth slowdowns within Canada’s borders going forward will also hamper Manitoba’s export demand this year. Industries reliant on the manufacturing sector, such as Manitoba’s outsized transportation sector, will also likely see diminished activity this year. 

Manitoba has a relatively large public sector. Last year’s budget pointed to significantly slower program spending growth this fiscal year. However, a stronger spending profile in the upcoming budget on March 20th could support the economy while these trade headwinds are blowing. Government investment is also proceeding at a hefty pace, lifted by healthcare projects, with capital spending intentions pointing to an elevated level being maintained this year.

Ontario

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Ontario’s economy is one of the most vulnerable to the U.S.-Canada trade war (Chart 1) because of its large manufacturing sector. For this reason, 2025 Ontario real GDP growth forecast has been downgraded by more than nation-wide. We would have reduced our forecast even further had it not been for the momentum Ontario’s economy was carrying heading into these trade tensions. For instance, tariff front-running gave Ontario’s exports a solid boost in January, supporting first quarter growth. This dynamic should also help moderate the impacts of tariffs for a few months. 

Ontario’s steel industry has been slapped with a 25% tariff on it’s U.S.-bound shipments. Its output should contract in response, as it did during the last time the industry faced tariffs in 2018/19. Because of the steel sector’s small share of GDP (less than 1%), these levies won’t be enough to blow the entire economy off course. More severe would be the imposition of steep tariffs on automotive products, which are by far the largest Ontario export to the U.S. Indeed, sizeable tariffs on autos (and other manufactured products) could come in April. On the other side, Canadian retaliatory tariffs on steel and aluminum will likely raise costs in the manufacturing and construction industries.

The Ontario government has been active in response to U.S. tariffs by (for example) banning U.S. firms from Ontario public sector procurement and eliminating alcohol purchases. They’ve  also released a plan which targets (according to the government) some $40 billion in new investments, loans, and other financial supports. However, it’s unclear how much of that is net new spending as the plan is not fully costed. Elements of the plan include a $5 billion Protect Ontario Account (financial support programs for large-scale industrial sectors) and $10 billion through a 6-month deferral of provincial business taxes.

Ontario’s housing market has been exceedingly weak in recent months (Chart 2) as economic uncertainty, abetted by winter storms, chilled activity. We look for a subdued performance for much of the year as uncertainty weighs. In particular, supply/demand balances indicate that there is too little demand chasing too much supply, with downside price pressure likely over the next several months. However, 2026 prospects are brighter given the combination of pent-up demand, dissipating uncertainty, and a quarterly firming in hiring.  

Québec

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Quebec’s outsized manufacturing industry is exposed to the U.S.-Canada trade war through industries such as aerospace, metal, and aluminum. The latter product is Quebec’s largest shipment south of the border. Although it’s considered a critical mineral in the U.S. (where a lesser, 10% U.S. tariff should apply on non-USCMA compliant goods), President Trump has hit these shipments with a 25% tariff rate. If sustained, this will likely cause a massive contraction in aluminum export volumes to the U.S., given that they plunged 15% in 2018 when a 10% tariff was applied. If there’s a saving grace, it’s that aluminum is a small share of overall GDP (Chart 1). 

Notably, front running of U.S. purchases could also temporarily delay potential impacts on the manufacturing sector. That said, we see broad manufacturing activity weakening as the year progresses, weighed on by duller domestic conditions and softer U.S. growth prospects. Other trade-exposed industries, such as transportation and wholesale trade, are likely to be impacted this year as well. 

In response to tariffs, the provincial government has signaled that the March 25th budget will have a focus on infrastructure investment and offer loan programs for industries affected by the tariffs. The former would complement homebuilding, which is seeing healthy growth and is likely to contribute positively to the economy this year. Quebec will also ban the purchase of American alcohol and penalize American companies that bid on public contracts, while also mulling other measures. 

2024 marked a solid year for household spending, buffered by lower interest rates and supportive federal government measures. However, cooler economic growth this year should weigh on hiring (sapping the decent momentum seen so far), thereby dampening consumer’s moods. Fortunately, households in Quebec are one of the least indebted in the country, and household savings rates are highly elevated, offering some cushion against a tepid economy (Chart 2). 

Quebec’s housing demand has shown some resilience, with per capita sales 17% above their long-run average in January. Although economic uncertainty will restrain sales growth this year, we think that home sales and average home price growth will be positive in 2025, with the latter supported by reasonably tight supply/demand conditions.

New Brunswick

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The economy of New Brunswick (N.B) is arguably the most vulnerable to the U.S.-Canada trade war. The province ships over 90% of its goods to the U.S., or the equivalent of one-third of its GDP, ranking first across provinces (Chart 1). Mineral fuels and forestry –the province’s first and third largest export industries – are facing particular threats from the imposition of U.S. tariffs. Seafood, the province’s second largest export, is in the crosshairs of a recently-implemented 25% tariff from China.  For these reasons, we’ve lowered our 2025 and 2026 real GDP growth forecasts to a mere annual average rate of 0.5%.  That represents a hefty markdown of 0.9 ppts per year from our December view. 

In response, the N.B. government has outlined a four-pillar plan to support households and businesses through the period of tariff adjustment, while conducting internal reviews to reduce interprovincial trade barriers. On the latter, the government has already removed nine exceptions that were previously allowed under the Canadian Free Trade Agreement (CFTA), and more are currently under review. Removing these barriers works in the province’s favour especially given their outsized reliance on interprovincial trade relative to other jurisdictions. The government is also planning its 2025 Budget armed with a relatively solid fiscal standing. N.B. carries the third lowest net-debt burden among the provinces, pointing to some fiscal wiggle room to offset the external growth headwinds.

Last year, consumer spending had buoyed economic growth, benefitting from comparatively low average debt levels, robust population growth, and healthy labour demand. Very recently, however, there have been some early signs of spending fatigue, which could partly reflect a sharp downturn in population gains since late last year (Chart 2).  Further consumption gains will depend on the near-term labour market outlook, where we do expect employment growth to slow, especially in tariff-exposed sectors. That said, our forecast for a peak unemployment rate of around 7.5% by the end of the year would still be below pre-pandemic levels. 

Elsewhere, tariff-related economic uncertainty is likely weighing on N.B.’s housing market. This year should see weaker growth in home sales and average home prices.  Relative to 2019 levels, prices are still over 80% higher (as of February), while home sales have retreated back in line. Looking ahead, tariffs are dampening the outlook for near-term business investment, but robust capital spending in both the residential and non-residential space over the past few quarters is providing a strong handoff for 2025.

Nova Scotia

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