Canada: Growth rebound overshadowed by trade war – BBH

Elias Haddad of Brown Brothers Harriman predicts Canada's Q2 Real GDP will surge, surpassing the Bank of Canada's projections. This growth surge would be driven by domestic demand and exports. However, the US-Canada trade war and new 50% tariffs on approximately 0.85% of Canada's GDP could hinder this recovery. Haddad mentions that core inflation being near the 2% target allows the Bank of Canada to maintain its rates, suggesting a potential downward adjustment in CAD rate expectations.

Canada's economy is projected to rebound in Q2, with Real GDP expected to grow 3.4% SAAR, outperforming the Bank of Canada's 2.5% forecast. Statistics Canada's advanced July GDP estimate will provide an early insight into Q3. The worsening trade war, however, poses a risk to this growth recovery. On Friday, trade talks between the two nations collapsed, leading to the implementation of new tariffs.

The tariffs impose a 50% duty on nearly $20 billion worth of imports from Canada, representing 0.85% of the country's GDP. These tariffs apply to a wide range of products, including wine, hockey sticks, and cement, but exclude energy, potash, and other goods like fish or critical minerals. Canada will reciprocate these tariffs dollar-for-dollar starting September 8.

The Bank of Canada can hold rates steady due to core inflation being close to its 2% target, allowing room for adjustments in the swaps curve, which suggests a potential 75 basis points of tightening in the next twelve months.