Instead, the central bank produced two scenarios on what could happen, including one which predicted a deep recession in Canada and a spike in inflation.

Governor Tiff Macklem said the bank – which began cutting last June – had kept rates on hold as it gained more information on the impact of tariffs and would proceed carefully.

For the latest tariff news and analysis, visit the Western Producer’s tariff page.

“That means being less forward looking than usual until the situation is clearer,” he said in his opening remarks after the rates decision was announced.

“It also means we are prepared to act decisively if incoming information points clearly in one direction,” he said. The bank’s monetary policy would ensure that inflation remained under control and would support economic growth, he added.

Possibility of more aggressive approach still open

Economists construed the governor’s commentary as an indication that the bank’s current pause was not an end to the easing cycle and it would jump in to support the economy if needed.

“He’s clearly laid open the possibility of getting a lot more aggressive if the economy deteriorates substantially,” said Doug Porter, chief economist at BMO Capital Markets.

Andrew Kelvin, head of Canadian and global rates strategy, TD Securities, said that going forward the weakness is expected to pile up in the economy and that would force the bank to cut rates again.

Currency swap markets are betting on 54 per cent odds of another pause on June 6, when the bank announces its next monetary policy decision.

The Canadian dollar extended gains after the policy decision and was trading firmer by 0.51 per cent to 1.3884 against the U.S. dollar, or 72.03 U.S. cents. Yields on the two-year government bonds were up 0.9 basis points to 2.541 per cent.

GDP expectations

In the near term, the BoC expects second-quarter GDP to be much weaker, after a 1.8 per cent growth forecast for first quarter. Inflation is seen dipping to about 1.5 per cent in April, mainly due to the removal of carbon taxes and lower crude prices.

The bank said it was difficult to predict the path of the economy for the long term.

“Forecasts for economic growth are of little use as a guide to anything,” Macklem said.

For the first time since the pandemic the BoC scrapped the economic forecasts it gives in a quarterly monetary policy report. It instead offered two possible scenarios.

The first assumes that most of the tariffs are eventually withdrawn through negotiations, which would stall GDP in the second quarter. The economy then expands moderately, while inflation sinks to 1.5 per cent before returning to the two per cent target.

In the second scenario, the bank assumes the tariffs spark a long-lasting global trade war. In this case, the Canadian economy goes into a significant recession for a year while inflation spikes to 3.5 per cent in mid-2026.

Macklem said that under this scenario, the U.S. tariffs would permanently reduce Canada’s potential output and lower the country’s standard of living.

“To be clear, these are only two of many possible scenarios, and even these do not span the possible outcomes,” he said.

Canada’s economy, which had been teetering for most of last year, found its footing as 2024 was ending.

But U.S. President Donald Trump’s decision to unilaterally slap a barrage of tariffs on Canada and Mexico followed by on the rest of the world have dented business investments and consumer spending.

This is evident in the recent hard data which showed lack of job growth, elevated inflation and weaker economic growth.

—Additional reporting by Fergal Smith, Anna Mehler Paperny and Divya Rajagopal

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The ministers from the 21 Asia Pacific Economic Cooperation (APEC) countries said in a communique issued after a virtual meeting there was wide divergence in recovery across and within economies, with downside risks remaining.

“We need to sustain our economic recovery through continued policy support measures, while preserving financial stability and long-term fiscal sustainability,” the ministers said.

They also said they would facilitate trade in a broader range of medical supplies to fight COVID-19 and voluntarily work to reduce the cost of vaccines and related goods. They pledged to support WTO negotiations on a temporary waiver of intellectual property protections on COVID-19 vaccines.

The ministers’ meeting is part of a week-long series of APEC conferences culminating in a summit on Friday into Saturday, hosted entirely online by New Zealand, a country with hardline pandemic control measures that has kept its borders closed to almost all travellers for 18 months.

While New Zealand has emphasized APEC support for boosting supply chains for critical medical supplies and efforts to decarbonize economies, tensions are expected over self-ruled Taiwan’s bid to join a regional trade pact in which China also seeks membership, and a U.S. bid to host the 2023 round of APEC meetings.

New Zealand’s Foreign Minister Nanaia Mahuta told reporters at a news conference in Wellington there was no agreement yet on which country would host APEC in 2023, despite an offer from the United States.

China and Taiwan’s bid to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) was not a core part of the discussions, New Zealand’s Trade and Export Growth Minister Damien O’Connor said at the conference.

Taiwan’s has said it aims to use the APEC gathering to garner support for its bid to join CPTPP, while China, which has also applied to join the pact, opposes Taiwan’s membership.

“As a trade and economic forum all economies welcomed greater movement and reduction of trade barriers. CPTPP provides that but accession requests do mean that those applicants will have to look at standards required to ultimately become members and be accepted,” O’Connor said.

Opening travel

With many economies in the region dependent on tourism, the APEC ministers said they would work to ensure safe travel in the region, with “tangible outcomes in 2022.”

The trade-focused group said officials would work to foster a favourable trade and investment environment and “ensure our trade and investment environment is free, open, fair, non-discriminatory, transparent and predictable.”

The APEC ministers said they would engage at the WTO’s 12th ministerial meeting (MC12) at the end of November to modernize trade rules and deliver concrete results. They called for WTO countries to negotiate effective curbs on harmful fisheries subsidies at the meeting in Geneva.

As for agriculture, the ministers said, “despite its importance for ensuring global food security and sustainable economic development, agriculture is one of the most protected sectors in global trade.

“We recognize the need for a meaningful outcome on agriculture at MC12, reflecting our collective interests and sensitivities, with a view towards achieving substantial progressive reductions in support and protection,” in line with previous WTO mandates, the ministers said.

On climate-related issues, the ministers said they would try to accelerate efforts to rationalize and phase out “inefficient fossil fuel subsidies that encourage wasteful consumption,” a goal first agreed by APEC leaders in 2010.

Along with the U.S., China and Taiwan, APEC’s 21 member economies include Canada and its 10 fellow CPTPP countries, plus Russia, South Korea, Hong Kong, Indonesia, the Philippines, Thailand and Papua New Guinea.

— Reporting for Reuters by David Lawder and David Brunnstrom; additional reporting by Susan Heavey and Praveen Menon.

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The escalating clash over trade between Washington and some of its closest global partners cast a cloud over Trump’s efforts to make history in nuclear talks in Singapore on Tuesday with Kim Jong Un of North Korea, one of America’s bitterest foes.

Having left the Group of Seven summit in Canada early, Trump’s announcement that he was backing out of the joint communique torpedoed what appeared to be a fragile consensus on the trade dispute between Washington and its top allies.

“Fair trade is now to be called fool trade if it is not reciprocal,” said Trump, who flew from Canada to Singapore on Sunday to prepare for the first-ever summit between a U.S. and North Korean leader.

“Sorry, we cannot let our friends, or enemies, take advantage of us on trade anymore. We must put the American worker first!”

The communique, which had appeared to have papered over the cracks that surfaced so uncharacteristically at the G7, said the leaders of the U.S., Canada, Britain, France, Italy, Germany and Japan were agreed on the need for “free, fair, and mutually beneficial trade” and the importance of fighting protectionism.

“We strive to reduce tariff barriers, non-tariff barriers and subsidies,” the statement said, which came despite Washington appearing intent on taking more punitive steps on trade.

Trump’s extraordinary outburst on Monday against NATO allies, the European Union and Canada appeared aimed at striking a chord with voters who support his “America First” agenda.

At the same time, however, it put Trump in the position of going into a crucial summit at odds with countries he needs on his side to pressure North Korea to move toward dismantling a nuclear arsenal that threatens the U.S.

“Not fair to the people of America! $800 billion trade deficit,” he said. “Why should I, as president of the United State, allow countries to continue to make massive trade surpluses, as they have for decades, while our farmers, workers + taxpayers have such a big and unfair price to pay?”

It was left to Trump’s aides to figure out how to explain Trump’s airing of grievances against trading partners instead of focusing on his coming talks with Kim, which the president’s supporters hope will provide him with a major foreign policy win.

Irritants will be overcome

Secretary of State Mike Pompeo praised European countries for helping to bring about the North Korea summit, alluding to their enforcement of sanctions against Pyongyang. He expressed confidence that U.S. relations with other G7 countries would continue to move forward, despite the weekend clash in Canada.

“There are always irritants in relationships,” Pompeo told reporters. He dismissed as “ludicrous” the notion that Kim would decide he could not trust the U.S. because of the G7 dispute.

White House spokesman Raj Shah said Trump was “rattling the cages right now on trade,” insisting there was no reason to believe there would be any negative fallout for the North Korea summit. “These are really unrelated baskets of issues.”

But one U.S. official, speaking on condition of anonymity, acknowledged: “The timing for all this is not very good at all.”

The prospect that Trump could be moving toward an even greater protectionist trade policy is likely to chill financial markets worried about tit-for-tat escalation that could lead to a full-blown global trade war.

“Business confidence, and subsequently capital spending, is at risk if this tension continues through the summer,” said Tai Hui, J.P. Morgan Asset Management Chief Market Strategist for Asia Pacific. “This could cast a long shadow over global growth, which has rebounded in recent weeks after a soft start to the year.”

Nevertheless, markets were relatively calm on Monday after an early wobble.

Trump also lambasted fellow members of the North Atlantic Treaty Organization (NATO) for paying disproportionately less than the United States to maintain the Western alliance.

“The U.S. pays close to the entire cost of NATO — protecting many of these same countries that rip us off on trade (they pay only a fraction of the cost – and laugh!),” he tweeted. “The European Union had a $151 billion surplus – should pay much more for military!”

“Germany pays 1 percent (slowly) of GDP towards NATO, while we pay 4 percent of a much larger GDP. Does anybody believe that makes sense?”

“We protect Europe (which is good) at great financial loss, and then get unfairly clobbered on trade. Change is coming!”

Trump also renewed attacks on Canadian Prime Minister Justin Trudeau, who had hosted the G7 meeting in Quebec.

“Justin acts hurt when called out!” the U.S. president said in his latest tweet. On Saturday, he called the Canadian prime minister “very dishonest and weak” and added that “Our Tariffs are in response to his of 270% on dairy!”

Place in heaven

White House economic adviser Larry Kudlow accused Trudeau of betraying Trump with “polarizing” statements on trade policy that risked making the U.S. leader look weak ahead of the historic summit with Kim.

“(Trudeau) really kind of stabbed us in the back,” Kudlow, the director of the National Economic Council who had accompanied Trump to Canada, said on CNN’s “State of the Union.”

Trade adviser Peter Navarro told Fox News Sunday that “there is a special place in hell for any leader that engages in bad faith diplomacy” with Trump.

Pompeo, at the Singapore briefing, pointedly ignored a reporter’s question about Navarro’s comment and left the podium while he was being pressed for an answer.

Trudeau, in Quebec City for bilateral meetings with non-G7 leaders after the summit, did not comment as he arrived.

But he got direct personal support from some European leaders.

British Prime Minister Theresa May “is fully supportive” of Trudeau and his leadership, a senior UK government source said, while European Council President Donald Tusk tweeted: “There is a special place in heaven for @JustinTrudeau.”

— Reporting for Reuters by Matt Spetalnick and David Brunnstrom; additional reporting by Vidya Ranganathan in Singapore and Marius Zaharia in Hong Kong; writing by Simon Cameron-Moore.

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