The 2025 federal budget outlines the path forward for the Canadian economy to emerge from the current crisis. But it also underscores how deep the hole in the economy is now and how little margin for error there is as Canada navigates the dangers of a trade war.
“This budget must be generational and serve to shape our economy and the future of our country,” said Finance Minister François-Philippe Champagne. “There is no room for retreat, ambiguity or even standing still; only bold and quick actions.”
The budget lays out various economic growth scenarios for the next five years. The so-called growth scenario envisions a world in which U.S. tariffs are eliminated and global trade returns to normal.
Under the downward scenario, the Canadian economy will contract during the quarter running from April to June. Unemployment will peak at around 7.4 percent and economic growth in Canada will be weak for several years.
“Nominal GDP [would be] lower on average by $51 billion per year over the forecast horizon relative to the survey forecast for August 2025,” the budget states.
This scenario would lead to a further weakening of the Canadian economy – and it's not that far-fetched. It's still entirely possible that next month's GDP data will show Canada fell into recession this summer, with unemployment rising for months.
Finance Minister Francois-Philippe Champagne presented the Liberal government's first budget on Tuesday. CBC reporters cover the political and economic implications of the budget, including a major new direction for defense spending.
Will the trading chaos end?
The budget makes a clear promise about the path forward: Canada will rise relatively quickly from the ashes of two quarters of trade chaos.
But David McDonald, senior economist at the Canadian Center for Policy Alternatives, says there's a problem with that promise.
“It is unclear to me that the chaos will end and that the impact on Canada will end any time soon,” he said.
Macdonald says budget promises to reimagine Canadian economy; help businesses find new markets; and help industries adapt to a new, less predictable future than the one to which they are accustomed.
It offers billions of dollars in tax breaks for Canadian companies to build new facilities. And it promises enormous resources to ensure Canadian products find a market.
But McDonald says this comes with great difficulty. And with the Canadian economy already on the brink of recession, it doesn't have much wiggle room if things go wrong.
“How do we replace federal intervention with what used to be trade with the United States? How do we replace international trade with trade that used to be with the United States? It's a very difficult proposition,” he said.
And while the Budget shows what a more worrying economic scenario would look like, it doesn't offer many remedies if things actually get worse rather than better.
“If the situation worsens economically, it will [budget] will have to change,” says Sahir Khan, co-founder and executive vice-president of the Institute for Fiscal Studies and Democracy at the University of Ottawa.
The situation can worsen for various reasons.
The trade war could deepen. The economy may be hit by some other external shock, or, more likely, it may take longer for the budgeted benefits to be realized.
“I don't think these measures will take effect in the short term. It's about confidence in the short term, but the effects of the major capital strategy and defense strategy will be felt for decades,” Khan said.
The damage has already been done
While this budget charts a vital new path, the fact remains that there is very real damage being done to the Canadian economy and Canadian businesses right now.
So the biggest hurdle for the budget is not necessarily just the implementation of some radical changes (from a government that has previously struggled with implementation). And the point is not even whether the bet will be justified.
The hardest part will be ensuring that the Canadian economy stays afloat.
Finance Minister Francois-Philippe Champagne is responding to skepticism that his first budget can deliver on a reported $1 trillion in total investment over five years and defending the size of the budget deficit at $78 billion. Champagne is advising MPs from other parties to “think twice” before deciding not to support the document, as it remains unclear where the Liberals will find enough support to pass it.
If Canada can prevent a recession, keep the unemployment rate from rising further, and avoid further escalation of the trade war, implementing the changes outlined in this budget will be much easier.
But it's not an easy task—and at least part of it is beyond the control of the Canadian government.
