Canada's Q3 GDP Outlook: Navigating Trade Tensions in a Slowing Global Economy

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Data query for generating a chart:
- X-axis: Years (2023–2026)
- Y-axis: GDP growth percentages
- Series 1: Global GDP growth (3.3% in 2024, 2.9% in 2025, 2.9% in 2026)
- Series 2: Canada's GDP growth (1.5% in 2024, 1.0% in 2025, 1.1% in 2026)
- Annotations: "U.S. tariffs on steel/aluminum," "Bank of Canada rate cuts to 2.75%," and "RBC's Q3 resilience indicators."

As global economic growth slows amid intensifying trade tensions, Canada's Q3 GDP outlook reflects a delicate balance between external headwinds and domestic resilience. While U.S. tariffs and policy uncertainty have dampened export-driven sectors, early signs of recovery in manufacturing and trade volumes suggest the Canadian economy may yet outperform expectations in the third quarter of 2025.

Global Slowdown and Trade Barriers

The global economy entered 2025 with a fragile momentum, supported by lower energy prices and improved financial conditions but constrained by rising trade barriers. Euromonitor's Q3 2025 forecasts project global real GDP growth at 2.9% for both 2025 and 2026, down from 3.3% in 2024, as trade tensions and policy shifts create uncertainty, according to Euromonitor's Q3 2025 report (https://www.euromonitor.com/global-economic-forecasts-q3-2025/report). The World Economic Forum's Chief Economists' Outlook similarly underscores divergent regional outlooks and the intensifying impact of U.S. tariffs on global supply chains, as detailed in the World Economic Forum's Chief Economists' Outlook (https://www.weforum.org/publications/chief-economists-outlook-september-2025/). For Canada, a trade-dependent economy, these dynamics have been particularly challenging.

Canada's Trade-Driven Challenges and Resilience

Canada's exposure to U.S. trade policies has been a double-edged sword. The OECD expects Canadian GDP growth to decline from 1.5% in 2024 to 1.0% in 2025, driven by reduced exports and weaker business investment, according to the OECD Economic Outlook (https://www.oecd.org/en/publications/oecd-economic-outlook-volume-2025-issue-1_83363382-en/full-report/canada_1e6fe491.html). U.S. tariffs-including 25% on steel and aluminum and 10% on energy and potash exports-have directly impacted key sectors, the OECD notes. However, 86% of Canadian exports to the U.S. remain duty-free under current rules, and the average effective tariff on U.S. imports from Canada stands at 2.3%, the lowest among major U.S. trade partners, per the OECD findings.

Despite these challenges, RBC's quarterly outlook highlights signs of resilience in Q3 2025: rising export volumes and increased manufacturing sales indicate a partial recovery from the trade war's earlier effects, according to RBC's quarterly outlook (https://www.rbc.com/en/thought-leadership/economics/economy-and-markets/macroeconomic-outlook/quarterly-canadian-outlook-low-but-positive-growth-ahead/). This aligns with the Bank of Canada's non-linked projections, which anticipate a moderation in growth but emphasize that Canada's economy remains structurally sound.

Policy Responses and Economic Adjustments

To mitigate the impact of trade tensions, the Bank of Canada has cut interest rates to 2.75%, with further modest reductions expected in 2025, a move intended to offset inflationary pressures from tariffs while supporting domestic demand. Domestically, Canada has also implemented measures such as tax deferrals and employment insurance programs to cushion trade-affected sectors (details in the OECD Economic Outlook cited above). The OECD, however, warns that prolonged trade uncertainty could further erode growth and push inflation higher, a concern echoed in reporting by CBC (https://www.cbc.ca/news/business/oecd-lowers-global-outlook-trump-trade-war-1.7550723). Canada's long-standing productivity challenges-exacerbated by weak business investment-remain a concern. Bank of Canada Governor Tiff Macklem has stressed the need for export market diversification and reduced internal trade barriers to strengthen productivity and attract foreign capital, a theme noted in RBC's analysis.

Q3 Outlook and Investment Implications

For investors, Canada's Q3 GDP outlook presents a nuanced picture. While trade tensions persist, the economy's resilience in manufacturing and exports suggests a potential rebound. RBC's analysis notes that Q3 indicators, including improved trade balances and business confidence, point to a low but positive growth trajectory (RBC's quarterly outlook, cited above).

However, caution is warranted. The OECD's projection of 1.0% GDP growth for 2025 underscores the fragility of Canada's economic recovery (OECD Economic Outlook, cited above). Investors should prioritize sectors less exposed to U.S. tariffs, such as technology and services, while monitoring policy developments. The Bank of Canada's rate cuts may provide short-term relief, but structural reforms will be critical for long-term stability.

Conclusion

Canada's Q3 GDP growth in 2025 will hinge on its ability to navigate trade tensions while leveraging domestic strengths. While global headwinds persist, early signs of resilience in key sectors offer cautious optimism. For investors, a balanced approach-focusing on diversification and policy responsiveness-will be essential in this evolving landscape.