Canada’s Economic Tightrope: OECD Projects Decline But Not Recession Amid Trade War

Canada’s economic path is a precarious one, with the Organization for Economic Co-operation and Development (OECD) projecting a decline this year but stopping short of forecasting a recession, even as the global trade war intensifies. The OECD has broadly lowered its global economic growth projections, anticipating a drop from 3.3% in 2024 to 2.9% in both 2025 and 2026. This cautious outlook for Canada comes amidst a general darkening of the global economic picture.
The OECD’s overall report warns that “weakened economic prospects will be felt around the world,” leading to “lower growth and less trade [that] will hit incomes and slow job growth.” Canada is specifically highlighted as one of the nations expected to be a significant contributor to the global economic decline. Despite this, a separate OECD report on May 26 for Canada suggested that a full-blown recession might be avoided.
However, the report also raises concerns about “protectionism” putting pressure on inflation, meaning higher costs for goods and services. This inflationary trend could be particularly challenging for Canada, as the Bank of Canada has already raised interest rates in response to past inflationary spikes. The OECD advises central banks like the Bank of Canada to “remain vigilant” regarding inflation, even if immediate rate hikes are not expected.
Prime Minister Mark Carney’s government is actively working to mitigate the damage from the trade war, including diversifying trading partners and removing interprovincial trade barriers. The OECD also stresses the importance of increased investment to revive economies and improve public finances, a crucial step for Canada to navigate the current economic uncertainties and potentially avoid a deeper downturn.