Canada's Economy to Face Tariff Threats Amid Expected Growth

The Canadian economy is expected to experience some growth in May, despite the threat of new US tariffs. According to RBC, Canada's GDP likely rose by 0.2% in May, following a 0.5% gain in April driven by mining and oil extraction.

The new tariffs, which are set to take effect on August 20, will impact about 5% of Canada's exports to the US, affecting sectors such as plastics, electrical machinery, furniture, and home appliance manufacturing. However, RBC notes that these sectors have some flexibility to adjust to the new tariffs.

The new tariffs are expected to exacerbate regional disparities in the Canadian economy, with provinces such as Ontario, Quebec, and British Columbia being disproportionately affected.

RBC believes that domestic demand for tariffed goods can provide a partial offset to the negative impact of the new tariffs. They also expect the Bank of Canada (BoC) to hold interest rates steady this year due to uncertainty surrounding the impact of the tariffs on inflation expectations and business sentiment.