How Tariffs and Uncertainty Are Reshaping Outlook for 2025.
The Bank of Canada’s decision to reduce the overnight rate by 0.25% on March 12 comes at a rocky point in time. January’s CPI figure was 1.9%, driven by higher energy prices as well as the effects of the GST holiday. Job growth in February was mostly stagnant as employment and unemployment metrics were essentially unchanged.
Tariff pressure from the United States has stalled the upward momentum of Canada’s economy and threatens jobs and industries across the nation. Prior to tariffs, there was more market confidence that 2025 would be a year of recovery and modest growth; however, the volatility and risks of tariffs being perpetuated by the Trump Administration has stirred a significantly higher level of uncertainty for individuals, businesses, and governments.
Tariff Turmoil
Earlier this month, the United States imposed a blanket 25% tariff on various Canadian goods, with the exception of energy products, which face a 10% tariff. Originally scheduled to be implemented in February, tariffs have been threatened, implemented, paused, and are currently under several amendments and certain goods are exempt while markets are left guessing.
Markets remain highly sensitive to volatility and generally hedge against risk. Recent events have threatened the positive economic momentum that began in 2024, and now both the US and Canada face the real possibility of stagnant, or worse, contracting economic markets in 2025.
The Bank of Canada may have reduced the policy rate earlier than desired today due to these events, and further reductions may be necessary if the trade war continues and risks escalate.
The Outlook for Construction
Tariffs have significant impacts for key construction industries, including lumber, energy, aluminum and steel, gypsum, and construction equipment. For example, lumber futures have risen 14% since January.
Rising costs have been an issue for the construction industry, and uncertainty from tariffs also affects jobs, the currency exchange rate, investor sentiment, and business confidence. Job losses reduce demand for goods and services, causing growth to falter.
BTY published a forward perspective on tariffs earlier this year and we continue to monitor their impacts to the construction industry.
Looking ahead in the short term, expect higher volatility as supply chains adapt to tariffs. While lower interest rates may be welcomed to drive investment activity, proactive cost, risk, and schedule due diligence will be critical for construction projects to succeed in potentially even tougher market conditions than the past 24 months. Connect with our team to learn more about tariff-related risk and position your projects for success.
