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CANADA: GS See Adverse Trade Outcome As Dovish For BoC, Still Eye 2.25% Terminal

CANADA
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  • President-elect Trump has signaled a hawkish stance on US-Canada trade relations, although we still see tariff threats as an opening bid in upcoming USMCA negotiations.
  • “Trump’s proposed 25% tariff would likely lower Canadian GDP by more than 2½% and raise prices by at least 2% if Canada fully retaliates”.
  • However, “we expect a more limited economic impact since 1) tariffs will likely fall short of recent proposals and 2) recent reports that Canada could retaliate with tariffs on up to 20% of US imports likely overstate the impact on the effective tariff rate (assuming surcharges on tariffed products do not rise by 100%).”
  • “We generally see an adverse trade outcome as dovish for the BoC given that the negative growth impacts would likely outweigh one-time tariff-driven price increases.”
  • They remain comfortable with their forecast of four 25bp cuts in 2025 to a terminal 2.25%. 
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  • President-elect Trump has signaled a hawkish stance on US-Canada trade relations, although we still see tariff threats as an opening bid in upcoming USMCA negotiations.
  • “Trump’s proposed 25% tariff would likely lower Canadian GDP by more than 2½% and raise prices by at least 2% if Canada fully retaliates”.
  • However, “we expect a more limited economic impact since 1) tariffs will likely fall short of recent proposals and 2) recent reports that Canada could retaliate with tariffs on up to 20% of US imports likely overstate the impact on the effective tariff rate (assuming surcharges on tariffed products do not rise by 100%).”
  • “We generally see an adverse trade outcome as dovish for the BoC given that the negative growth impacts would likely outweigh one-time tariff-driven price increases.”
  • They remain comfortable with their forecast of four 25bp cuts in 2025 to a terminal 2.25%.