Intelligent Investment
Trade Talks Go To Extra Innings
Canada Monthly Market Commentary - October 2025
October 30, 2025 2 Minute Read
Canada’s trade negotiations with the U.S. hit another roadblock after an anti-tariff TV ad provoked an abrupt end to talks and the threat of an additional 10% in tariffs. U.S. trade policy clearly remains unpredictable and driving an uncertain business environment. According to the Bank of Canada’s Q3 2025 Business Outlook Survey, overarching uncertainty remains the most pressing concern for businesses and has held back investment and hiring. In fact, a recent string of headlines have highlighted multiple layoff announcements. The cumulative impact stemming from the U.S. trade conflict has resulted in, as the Bank of Canada characterized, not just weaker growth but also a structural transition of the Canadian economy. Disruption as a result of U.S. trade is estimated to permanently lower Canada’s GDP by about 1.5% by the end of 2026.
To support the economy through this adjustment period, the Bank of Canada has lowered the policy interest rate by another 25 bps to 2.25%. Even though the most recent employment and inflation readings may not have necessarily been supportive for another rate cut, this decrease “reflects ongoing weakness in the economy and contained inflationary pressures.” Looking ahead, this is generally expected to be the central bank’s last rate cut, at least until the CUSMA negotiations begin. If the economy stays broadly in line with the Bank of Canada’s baseline outlook, the current policy rate is “at about the right level.”
Following the GDP contraction in Q2 2025, the Bank of Canada expects growth to resume in H2 2025, albeit weak and averaging an annualized 0.75%. Economic growth is then projected to slowly pick up throughout 2026 for an annual 1.1% increase before rising to 1.6% in 2027. Given the ongoing trade conflict, the central bank has stressed that the baseline outlook is subject to a wide range of risks. In particular, the projections rely on CUSMA remaining in effect and continuing to shield the bulk of Canadian goods from U.S. tariffs. As a major risk to many Canadian businesses, it will be critical for Canada to contain any negative outcomes from the upcoming negotiations. In the more immediate future, the federal budget is also set to be revealed on November 4th which has been promised to be an austerity but also investment-focused set of policies.
Economic Highlights:
- Employment rose by 60,000 jobs in September 2025 and the unemployment rate held flat at 7.1%.
- Headline inflation rose to 2.4% in September 2025 while the Bank of Canada’s core measures of inflation also increased slightly to average 3.0%.
- Retail sales for August 2025 increased by 1.0% in August 2025 with advanced estimates suggesting sales decreased by 0.7% in September.
Viewpoints:
- Trump says he’s ending trade talks with Canada over Ontario anti-tariff ad
- Business confidence still weak as tariffs hold back investment: BoC
- Bank of Canada lowers policy rate to 2¼%
- U.S. trade and tariffs loom large over Bank of Canada’s decision to cut rates again
- Negative CUSMA outcome biggest risk for Canadian economy, business leaders say
- Carney says to expect both an austerity and investment-focused budget, criticizes Trudeau-era spending
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