What a difference a couple of months can make. Rewind the year a bit and Canada was watching its economy enter a tailspin.

Gross domestic product contracted sharply in the second quarter as the drag on trade deepened to its worst since 1961, outside the pandemic, according to economists with Desjardins Group.

The outlook for central Canada, specifically Ontario and Manitoba — the two provinces most exposed to U.S. trade — was especially dire.

Now in the final stretch of the year many of those threats have shifted, and with them the outlook for Canada’s provinces, said Desjardins in its provincial forecast this week.

Compliance with the Canada-United-States-Mexico-Agreement (CUSMA) now means most exports to the United States are duty-free and the

effective tariff rate has settled at about 3 per cent, the economists said. The federal government’s removal of retaliatory tariffs on many U.S. goods will provide another lift to the economy. Desjardins estimates that GDP could be as much as 0.2 per cent higher due to lower inflation and

lower interest rates.  The central provinces, whose manufacturing industries are dependent on U.S. trade, will benefit most from this. Because construction was one of the sectors hit hardest by retaliatory tariffs, relief will be a boon to Ontario and British Columbia, where residential building is a big part of the economy.

The removal of the counter tariffs will also lighten inflation, leading Desjardins to cut its forecast for 2026 from 2.1 per cent to 1.7 per cent.  As these pressures ease, the economists expect the

Bank of Canada to cut its interest rate in October and then once more before pausing.

Desjardins has raised its GDP forecast for Canada, but specifically for the two central provinces directly in Trump’s firing line.

But it’s not all good news. While hiking the outlook for central Canada, Desjardins has lowered its predictions for the economic powerhouses of Alberta and Saskatchewan, now under pressure from

sinking oil prices.   Crude prices have slumped 10 per cent to a five-month low over the past three weeks on growing concerns of record oversupply. West Texas Intermediate dropped to US$59 yesterday, and analysts expect prices have further to fall.

“The current glut in crude markets is about to get a whole lot worse,” Robert Rennie, head of commodity and carbon research at Westpac Banking Corp., told Bloomberg.

Desjardins said while lower energy prices are a win for Canadian households, they mean lower profits, incomes and resources revenues and higher deficits in the energy producing provinces.

The forecast also reminds us that things could quickly turn ugly for the whole nation if trade negotiations derail.

“While our overall baseline scenario for the Canadian economy is a little rosier than before, the downside scenario remains alive and well, as the U.S. administration could reverse course on trade policies at any time,” they said. “This remains a material risk.”

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How does the pandemic housing boom compare with other real estate bubbles in the past? Stacked up against two widely recognized “bubbles” — Ontario in the 1990s and the U.S. housing market  after 2007 — this latest episode’s descent is a bit steeper as today’s chart shows. Moreover, its unwinding is not complete.

Robert Kavcic, senior economist at BMO Economics, said that because so many drivers came together during the pandemic, this housing cycle will be measured in years not months.

“Peak millennial demand; peak immigration; pandemic-era movement; excess liquidity; ultra-low interest rates; maxed-out valuations; and speculative market psychology,” he said.

“It’s next to impossible to repeat those conditions, and thus the bear market in housing staggers on until affordability and investment dynamics reset themselves.”

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Can I still retire with debt? This is not a question Vanessa, a lifelong saver, would have anticipated asking at age 63 but a legal issue two years ago has left her with a $100,000 home equity loan and she’s worried.

Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you starting out or making a change and wondering how to build wealth? Are you trying to make ends meet? Drop us a line at wealth@postmedia.com with your contact info and the gist of your problem and we’ll find some experts to help you out while writing a Family Finance story about it (we’ll keep your name out of it, of course).

McLister on mortgages

Family Finance crunches the numbers.  Want to learn more about mortgages? Mortgage strategist Robert McLister’s

Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his

Financial Post on YouTube

mortgage rate page for Canada’s lowest national mortgage rates, updated daily. Visit the Financial Post’s YouTube channel for interviews with Canada’s leading experts in business, economics, housing, the energy sector and more.

Today’s Posthaste was written by Pamela Heaven with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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