Canada’s economic outlook is becoming increasingly fragile, with a growing number of indicators pointing toward a potential recession in 2025. Two recently published analyses, one from Deloitte Canada’s economic forecast and a recent commentary from the Bank of Canada highlights mounting concerns about trade policy, inflation and the overall trajectory of economic growth. While neither outlook signals an imminent crisis, both urge caution in the face of persistent structural and cyclical pressures.
Deloitte: Recession Expected in Late 2025
Deloitte Canada’s latest economic report forecasts a mild recession beginning in the second half of 2025. According to the report, the slowdown will be driven primarily by deteriorating trade conditions, particularly the ongoing effects of tariffs on Canadian exports. Key sectors such as steel, aluminum and automotive manufacturing are expected to feel the brunt of these headwinds. Deloitte emphasizes that, unlike the sharp pandemic-era contraction, this downturn will be shallower and more localized, although still significant in its impact on employment and household income.
The firm expects the national unemployment rate to rise from its current level to approximately 7% over the coming months. Weaker consumer spending and delayed business investment are also cited as contributing factors to the economic deceleration. Although some temporary relief may come from easing interest rates or fiscal interventions, Deloitte notes that the broader macroeconomic environment, marked by geopolitical friction, a slowing US economy and global supply chain adjustments will continue to weigh on Canadian performance.
The report stresses that the expected downturn is not a structural crisis but a cyclical adjustment. Nonetheless, the implications are noteworthy, especially for businesses tied to export markets or sensitive to consumer sentiment. If trade tensions persist or intensify, the recovery may be more sluggish than previously anticipated.
Bank of Canada: Inflation Still Not Fully Understood
In parallel with Deloitte’s projections, the Bank of Canada has signalled it is in a “wait-and-see” mode when it comes to inflation. While headline consumer price index (CPI) data have shown some cooling, bringing inflation closer to the Bank’s 2% target, core inflation measures remain elevated, hovering above 3%. The Bank’s most recent communications reflect growing concern that underlying inflationary pressures may be more persistent than previously assumed.
Bank of Canada Governor Tiff Macklem has emphasized the need for more data before committing to any changes in monetary policy. Specifically, the Bank wants to better understand how recent tax changes, international trade dynamics and fluctuations in global oil prices are affecting price stability. This cautious approach suggests that any interest rate cuts, despite market speculation may not materialize until the Bank is confident that inflation is durably under control.
The central bank’s current stance underscores the complexity of Canada’s post-pandemic inflation story. While some drivers, such as energy costs and supply chain bottlenecks, have normalized, others, such as wage growth and housing-related inflation continue to exert upward pressure. Until these factors are better understood and managed, the Bank is likely to maintain its policy rate at current levels.
Broader Implications and Regional Sensitivities
The combined insights from Deloitte and the Bank of Canada paint a picture of an economy entering a phase of heightened sensitivity. Export-dependent provinces such as Ontario and Quebec may be disproportionately affected by trade restrictions and weaker US demand. Conversely, regions less reliant on manufacturing or international trade may experience a more muted slowdown.
For Canadian firms, particularly those with international supply chains, the forecast highlights the importance of diversification. Companies overly reliant on US trade may need to explore alternative markets, including the European Union and Central Eastern Europe as a hedge against ongoing protectionism.
From a Hungarian perspective, the outlook has several important implications. First, Canadian companies looking to reduce their exposure to US tariffs may increasingly turn to European partners. Hungarian firms in the automotive, engineering, or high-value manufacturing sectors could find new partnership or supplier opportunities as Canadian firms adjust their sourcing strategies. Second, tighter financial conditions in Canada may affect capital availability, making it more important for Hungarian investors and exporters to track Canadian credit markets and consumer sentiment closely.
Finally, rising unemployment, especially in key urban centers could lead to policy responses at the provincial or federal level that may reshape public investment patterns. These changes could create new entry points for Hungarian technology and infrastructure firms seeking to enter or expand in the Canadian market.
Conclusion
The Canadian economic outlook for 2025 is one of increasing caution. Deloitte’s projection of a mild recession and the Bank of Canada’s reluctance to pivot on interest rates both reflect a broader sense of uncertainty. While the fundamentals of the Canadian economy remain intact, the coming 12–18 months are likely to test the resilience of businesses and policymakers alike. For Hungarian–Canadian economic relations, this evolving environment presents both risks and strategic openings. Businesses on both sides of the Atlantic will benefit from staying agile, informed and responsive to shifts in trade, policy, and inflation dynamics.
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Written for the Canadian Chamber of Commerce in Hungary News Section as part of our ongoing coverage of developments affecting Canadian trade, economy and international partnerships, July 2025
