Bank of Canada governor warns new tariffs could cut fourth-quarter growth in half

Bank of Canada governor Tiff Macklem warns that the persistent trade war with the U.S. and conflict in the Middle East could unravel the recent rebound in the Canadian economy and significantly slow economic growth.

“We are all operating in a world where structural change, geopolitical fragmentation and supply disruptions are becoming more common,” Macklem said in a speech in Halifax on Monday morning.

The central bank governor said there is growing evidence that many businesses have adapted to the Section 232 levies and retaliatory measures since the trade war began in 2025.

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Non-energy exports rose at an annualized rate of 14.5 per cent in the second quarter of 2026 — the highest level since early 2025 — and business investment rose at an annualized rate of 8.8 per cent in the same quarter. The Canadian economy also grew at an annualized rate of 3.3 per cent in the second quarter of 2026, slightly higher than the Bank of Canada’s expectations after a year of flat growth.

Data from the central bank’s quarterly Business Outlook Survey also indicate businesses have adjusted their supply chains and sourcing strategies to reduce their exposure to tariffs, while exporters have expanded their relationships with existing overseas customers to diversify trade.

“Taken together, these developments suggest the economy entered the summer in a stronger position. Growth had resumed, investment was picking up and companies were beginning to look beyond the headwinds to opportunity,” Macklem said.

But the breakdown in trade negotiations and renewed strikes in the Middle East have clouded Canada’s economic outlook.