Wells Fargo sees Canada slipping into recession as tariffs weigh on growth

Investing.com -- Wells Fargo (NYSE:WFC) expects the Canadian economy to fall into a technical recession this year as new tariffs and weaker global trade dampen activity. In a note authored by economist Nick Bennenbroek, the bank downgraded its forecast, saying Canada’s outsized trade exposure to the U.S. leaves it particularly vulnerable to the latest round of protectionist moves.

“We now believe Canada’s economy will enter technical recession this year,” Bennenbroek wrote in the firm’s April 2025 International Economic Outlook. Canada’s close economic ties with the U.S., coupled with soft business sentiment and declining employment, have led Wells Fargo to adjust its view.

The economic impact stems from what U.S. President Donald Trump dubbed “Liberation Day,” when tariff rates were sharply raised on major trading partners, particularly China. Despite some rollback of tariffs against non-China partners, Bennenbroek said the damage to global growth was already done.

Wells Fargo now forecasts global GDP growth of just 2.3% in 2025, down from 2.7% before the tariff escalation. “Tariff headlines remain volatile,” Bennenbroek warned, noting that the risk of a technical global recession remains elevated this year and into 2026.

Central banks, including the Bank of Canada, are expected to respond with more dovish monetary policy. Bennenbroek expects the BoC to cut rates by another 75 basis points in 2025, reaching a policy rate of 2.00% by year-end despite lingering inflation worries.

“Given the trade links between Canada and the United States, Canada’s outsized sensitivity to U.S. demand should lead to the Canadian economy entering technical recession this year,” Bennenbroek said. Signs of slowdown, including a March drop in employment, already support a more cautious policy stance.

In broader terms, Wells Fargo expects the Federal Reserve to cut U.S. interest rates by 125 basis points by the end of 2025 to support the labor market, even though tariffs could introduce inflationary pressures. Other G10 central banks, like the ECB and BoJ, are also expected to shift toward looser policy as growth prospects deteriorate.

Bennenbroek also addressed the Canadian dollar outlook, predicting underperformance due to trade pressures, soft growth, and lower commodity prices. Wells Fargo expects the USD/CAD exchange rate to approach C$1.48 by late 2026, reflecting a tougher backdrop for Canadian assets.

“Tariff policy remains extremely fluid,” Bennenbroek wrote, cautioning that while trade deals could materialize to ease conditions, risks to Canada’s growth, fiscal position, and currency outlook will remain firmly tilted to the downside through 2025.

This article first appeared in Investing.com