The Blubber

Talk of a recession is intensifying, with a growing number of economists warning that Canada may already be entering the early stages of an economic downturn.

U.S. President Donald Trump’s ongoing trade war has dampened business and consumer sentiment on both sides of the border, but in Canada, the pullback has been even sharper than during the pandemic, according to Beata Caranci, chief economist at Toronto-Dominion Bank.

Concern over job security has surged, with more than 20% of Canadians now worried about losing their jobs, according to the Bank of Canada's latest survey of consumer expectations. Business confidence, too, has plummeted, as reflected in the Canadian Federation of Independent Business (CFIB) barometer.

There’s a key difference between the U.S. and Canada, Caranci explained in a recent presentation to clients. While U.S. sentiment is subdued, the economy there remains resilient. In Canada, by contrast, there’s a much tighter link between pessimistic sentiment and actual economic data.

“In Canada, the fear is real,” she said.

Canadian employers have cut 75,000 jobs over the past two months, with half of those losses coming from the manufacturing sector, Caranci noted.

TD now forecasts that an additional 100,000 jobs could be lost by the end of the third quarter, which would push Canada’s unemployment rate to 7.2%—a full percentage point higher than the bank’s previous forecast from December.

The bank has also revised down its GDP forecast, now predicting a contraction in both the second and third quarters of this year.

TD isn’t alone in its assessment. A survey of economists conducted by Bloomberg indicates that many believe Canada is already in a mild recession. They anticipate the economy will shrink by 1% on an annualized basis in Q2, followed by a slight 0.1% contraction in Q3.

These developments have added urgency for Canada’s new federal government. Prime Minister Mark Carney has postponed the release of the budget until the fall, but is moving forward with economic support measures that, according to Caranci, are likely to fall short of what’s needed.