Escalation of Economic Tensions Prior to the Complete Evaluation of Trade Disputes
Fresh Take:
The Quebec economy began the year strong, with a 0.5% GDP growth in Q1 2025 compared to Q4 2024, as per data from the Quebec Institute of Statistics. Yet economists echo a stark warning - this growth might be just a fleeting blip, as the ripples of the trade dispute with the US start to really seep in.
"Don't get too excited about the Quebec economy's growth at the start of the year," cautions Daren King, economist at the National Bank. He explains, "The growth is largely attributed to a significant boost in exports to our neighbors south of the border, who pre-emptively stocked up on goods to dodge tariffs."
Quebec companies indeed stepped up their imports, albeit modestly. At Mouvement Desjardins, Sonny Scarfone, the Chief Economist, agrees. He astutely remarks, "International trade played a crucial role in this growth, with exports witnessing faster growth than imports. This momentum reflects companies’ attempts at shielding themselves from the looming tariff barriers - for both their exports and imports."
However, one black cloud hangs ominously - domestic demand in Quebec has slowed down in Q1 2025. Consumers have grown apprehensive in the face of escalating trade conflict and, as a result, spending decreased by 0.4% in Q1 2025.
"Uncertainty stemming from the trade conflict has dampened consumers' spirits," says Daren King of the National Bank.
But there's a silver lining. Businesses in the province have shown resilience, with investments in machinery and equipment growing despite the uncertain economic climate. Also, residential building investments have skyrocketed, marking four consecutive quarters of growth and thriving housing starts.
Yet, these positive tidbits might not last if the US tariffs persist. According to experienced economist Hélène Bégin, "Quebec's economy may have weathered the storm so far, but it might be a calm before the polluted winds if the US tariffs are not eased or repealed soon."
She observes, "The trade conflict has already begun to push the unemployment rate higher, with levels hovering around 6% in Quebec. Upcoming GDP data is expected to confirm the crisis that looms over the province, particularly in regions that are most vulnerable to US tariffs like Saguenay-Lac-Saint-Jean, Mauricie, and Centre-du-Quebec."
Consequently, "a slowdown or even a contraction in the Quebec economy will be evident in the forthcoming GDP data," anticipates Bégin. This decrease in economic activity could reverberate through subsequent quarters, foreshadowing challenging times ahead for Quebec's economy.
Insights:- The trade conflict with the US might push Quebec into a recession if the tariffs are left unchecked- Inflation and job losses could surge as a result of the trade dispute- Governments are taking measures to aid affected companies and promote local sourcing- The provincial deficit is projected to expand, exacerbating fiscal challenges
- The rising trade conflict with the US has led some economists, such as Hélène Bégin, to warn that if the tariffs persist, the positive investments in machinery, equipment, and residential building in Quebec may not endure, potentially causing a recession in the province.
- The impact of the trade dispute with the US on Quebec's economy is not limited to economic activity, but also extends to the financial sector, politics, and general news, as inflation and job losses become significant concerns for the province.
