Canada's Economy on Thin Ice as Tariffs Threaten Stagflation

Bank of Canada Governor Tiff Macklem has issued a stark warning about the risks of stagflation in the Canadian economy. He stated that if the latest round of U.S. tariffs remains in place, fourth-quarter economic growth could be 'roughly cut in half,' falling below 1%. The current annual inflation rate stands at 3%, above the central bank's 2% target.

According to Macklem, businesses have adjusted supply chains and procurement strategies to reduce tariff exposure since trade frictions began nearly 18 months ago. However, the effectiveness of these adaptive adjustments is diminishing, and the new round of tariffs directly undermines business confidence in making long-term capital expenditures and hiring.

The elevated oil prices are also adding to price pressures. Macklem noted that if oil prices remain near $100 per barrel, inflation could rise further. The central bank's dilemma between growth and inflation has narrowed its policy space sharply.