Canadians went to the polls recently to elect a new government, and the outcome will have significant economic consequences. The next prime minister will face a variety of economic challenges, some of which will require immediate action. Among the most pressing issues are trade negotiations with the United States, resource development, economic growth, fiscal management, and dealing with uncertainty in the housing market.
Deal with U.S. Trade Relations
One of the first tasks for Canada’s new leader will be negotiating with U.S. President Donald Trump on trade matters. Trump has imposed tariffs on Canadian steel, aluminum, and the auto sector. Though some exports are currently exempt under the Canada-United States-Mexico Agreement (CUSMA), it is unclear how long this will last. Trump has also made renewed threats about turning Canada into the “51st state” and expects allies, including Canada, to shoulder more defense costs. The next prime minister will have to manage complex trade and security discussions with the U.S., which may include making concessions in areas like Canada’s auto manufacturing, supply management system, and digital sales tax.
Despite the challenges, the U.S. remains dependent on Canada for essential goods such as energy, critical minerals, and auto parts. The prime minister will need to negotiate a tough deal that maintains trade relations with the U.S. while also exploring trade diversification. Canada currently has 15 free trade agreements, including deals with Europe (CETA) and Asia (CPTPP). Expanding into new markets is a lengthy process, so the next leader must prioritize diversifying trade relationships.
Accelerate Resource Development
Resource development is another key area that will demand attention. Pipelines, particularly a west-east pipeline, were hot topics during the election campaign. The increasing urgency for energy self-reliance, coupled with the need for access to new global markets, has heightened support for these projects. Alberta Premier Danielle Smith has called for an end to the emissions cap on oil and gas, along with greater access for cross-boundary pipelines. The new prime minister will need to navigate the competing interests of stakeholders and manage expectations on energy-related infrastructure projects.
Another important area is the development of Canada’s vast critical mineral deposits. With the global demand for these minerals increasing, especially for clean energy technologies, the next leader will need to drive initiatives to unlock these resources.
Stimulate Economic Growth
Canada’s economy faces several challenges, including trade uncertainty, which has dampened business investment, consumer confidence, and hiring. In March, the Canadian economy lost 33,000 jobs, and the unemployment rate climbed to 6.7%. Many economists expect a recession to begin in the second quarter of the year, compounded by global economic slowdowns. The International Monetary Fund (IMF) has downgraded its global growth forecast due to the trade war, which includes Trump’s 10% baseline reciprocal tariffs.
In addition to trade-related concerns, Canada’s housing market, which had been expected to recover in 2025, has slowed significantly. Buyers are staying on the sidelines due to the ongoing uncertainty over trade relations, which has led to weaker demand. While immigration played a key role in Canada’s economic growth last year, cuts to immigration levels will prevent it from being a quick fix for the country’s economic troubles. The new prime minister will need to focus on stimulating growth and addressing these pressing economic challenges.
Keep Government Finances Under Control
The fiscal plans presented by the major political parties during the election featured significant new spending and higher projected deficits. Economists have raised concerns about the impact of the ongoing trade war on Canada’s economy and the cost of retaliatory tariffs. While Canada maintains a strong credit rating and has room to borrow if necessary, there are risks involved.
In 2022, the United Kingdom faced a government crisis when bond markets reacted negatively to Prime Minister Liz Truss’s budget, which included tax cuts without corresponding reductions in spending. Similarly, Trump had to back down on his plan for steep tariffs after market turmoil. Canada’s federal debt-to-GDP ratio is relatively strong compared to other countries, but the next prime minister will need to carefully manage fiscal policies to avoid endangering the country’s financial health.
