JPMorgan: Canada – Double Shock Provides No Boost
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Canada's economy faces a dual challenge from US tariffs and an oil supply shock. Since US tariffs were imposed in March 2025, nominal exports to the United States have fallen by 10.9 billion Canadian dollars, or 19.6%. Although exports to the rest of the world grew by 49.5% (6.8 billion Canadian dollars), this trade diversion falls significantly short of offsetting the decline. The US share of Canadian merchandise exports dropped from 75% in 2024 to 68% in early 2026.
Labor markets are bearing the brunt of the tariff impact. Manufacturing, wholesale/retail trade, and transportation have experienced sustained employment contractions over the past year. In February 2026, overall employment fell by 84,000, the largest monthly decline since the pandemic, largely driven by trade-related sectors. Conversely, the energy sector remains relatively resilient, benefiting from higher oil prices and duty-free access to the US market. However, energy accounts for a mere 1% of total employment and cannot offset broader economic damage.
JPMorgan concludes that the net impact of these combined shocks on economic growth is decidedly negative. The energy sector's low employment multiplier and capital expenditure discipline further limit broader economic benefits. The Bank of Canada faces a complex policy dilemma, balancing rising headline inflation from energy prices against underlying growth weakness. JPMorgan anticipates the central bank will ultimately adopt a dovish stance to mitigate economic damage, resisting the temptation to overtighten in response to temporary oil-driven inflation.