Ottawa economy plunged into uncertainty as inflation, unemployment, tariff threats rise

Ottawa Citizen

10 hours ago

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Are we in a recession?
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While the Bank of Canada has not officially announced that the country is experiencing a recession, tariff threats from the United States may tip the country and Ottawa into a 'moderate recession.'
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According to the Q1 2025 consumer survey, 67 per cent of respondents said they are anticipating a recession in the coming year. This is a significant increase — around 47 per cent of respondents said they were anticipating a recession when the survey was done in Q4 2024.
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Consumers are also more pessimistic about their financial health because they expect their finances to worsen in the next 12 months, the Bank of Canada wrote.
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'There's very good data on this going back 100 years that when consumers feel lots of uncertainty and that times are not good, and GDP is going down … People feel they're in a recession, or they're approaching a recession, and they dial back their spending' said Ian Lee, an associate professor at Carleton University's Sprott School of Business.
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'That actually acts as an anti-inflationary effect, because businesses have to try harder to get the customer to come in and spend money. They usually do that with price cuts.'
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But the tariff threats, and the uncertainty they cause among consumers, will drive people to reduce their spending.
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U.S. President Donald Trump threatened to increase tariffs on Canada to 35 per cent in a letter last week, saying that Carney's government had 'financially retaliated against the United States.'
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'The threat of tariffs is causing people to dial back their spending, which is cooling the economy, and the actual tariffs being imposed is raising prices, which increases the inflation rate. You've got both same phenomena happening at the same time,' Lee said.
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'If you see that tariffs on Canada are worse than what they are now, or there's more uncertainty about the tariff situation … I think that could tip the economy into a modest recession,' Jaffrey said.
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'We're looking at a complicated relationship with the United States. That's going to mean some form of economic stagnation, and that's going to mean broad-based weakness in the Canadian economy, until and unless we get some kind of support from fiscal policy or monetary policy, or preferably a trade deal with the United States.'
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It's not just consumers who are feeling the pinch. According to Lee, many local businesses in Ottawa will be forced to cut expansion plans and capital expenditures while also increasing prices of their goods in anticipation of the tariffs.
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'The threat of tariffs, and the multiple threats of tariffs, creates uncertainty, and the worst enemy of growth is uncertainty,' Lee added.