Wednesday

02-04-2025 Vol 19

Rising Recession Risks for North American Economies Amid US Tariff Turmoil

The economic outlook for Mexico, Canada, and the United States is becoming increasingly uncertain due to the tumultuous implementation of U.S. tariffs. Recent surveys by Reuters have indicated that the risks of recession are rising across North America as businesses grapple with unpredictable trade policies and inflation concerns. U.S. inflation, which was already on the rise, appears to have worsened, leaving the Federal Reserve with limited options for action in the coming months. The Trump administration has threatened significant tariffs—up to 25%—on imports from Canada and Mexico, only to temporarily suspend them multiple times within a short timeframe.

This inconsistency has created challenges for economists attempting to forecast growth, inflation, and interest rates. The unpredictability even complicates upcoming decisions, such as those from the Bank of Canada, making policy directions difficult to ascertain. Wall Street has also reacted negatively to these unpredictable tariff announcements, as seen in the declines in market indexes like the S&P 500. Economists from various financial institutions have expressed frustration with the erratic trade policies, noting that the ambiguity intensifies the risk of recession.

Shopping habits are changing, with many consumers delaying purchases, which can negatively impact economic growth. While some economists had previously avoided incorporating potential trade policy shifts into their projections, there’s a growing apprehension regarding the looming recession. Nearly all economists surveyed acknowledged a heightened risk of recession within their respective economies. The International Monetary Fund has indicated that sustained U.S. tariffs pose a significant threat to the Canadian and Mexican economies.

Looking ahead, many economists expect the Bank of Canada to reduce its interest rates in response to current economic challenges. Yet, uncertainties about the future economic landscape leave many reluctant to make definitive predictions. Inflation rates in the U.S. are also anticipated to rise, prompting some economists to revise their forecasts for future inflation and interest rates in response to these changing conditions.

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