In this week’s The Seven...

• Petering out - Canada’s economy stalled last quarter
• Standing pat  - The Bank of Canada and U.S. Fed pause
• Under review - The Canada-U.S.-Mexico Agreement
• Inside our borders - The benefits of free internal trade
• Interesting Fact: Battle of Alberta - Population edition
• Charts of the Week: Naturally speaking - When will deaths exceed births in Canada?

“Dream on, but don't imagine they'll all come true”
--“Vienna,” by Billy Joel

From tariffs to Venezuela, surely we’re at peak uncertainty. Not according to the latest readings from the Global Economic Policy Uncertainty Index*. It was even more hazy last year. Global uncertainty peaked in April 2025 - the month Trump took the trade war global with ‘liberation day’ tariffs.

But let’s not kid ourselves. The geopolitical environment is still pretty tough to navigate, and uncertainty readings are still around COVID levels. Released last week, the Bank of Canada’s latest Business Outlook Survey tells the same story. Sentiment has improved since last spring, but “trade-related uncertainty and the broad economic effects of tariffs continue to weigh on the outlooks of many firms.”  That uncertainty contributed to Dow’s delay of its Path2Zero petchem project in Fort Saskatchewan, Alberta, though yesterday we learned that Dow remains committed to the project.

The gold rush has continued this year, with this flight-to-safety asset hitting a record high this week at an astonishing $US 5,500/troy ounce yesterday, and silver (a precious metal with industrial electricity conducive qualities) seeing even larger gains this year. This morning, we saw gold retreat on news that Trump may select Kevin Warsh as the new Fed Chair, who has a more dovish slant.

A critical chess piece this year is the review of the Canada-U.S.-Mexico Agreement (CUSMA). But what is the CUSMA review anyway, and why does it matter? We take a look at that below.

As we peer into the future, Billy Joel has some sage advice. We can dream, but it’s unrealistic to assume we’ll sail through the CUSMA review and things will return to ‘normal’. Our forecast assumes status quo for 2026 - exemptions hold, but sector-specific tariffs remain in place.

Also on tap in today’s Seven is demographics! This week we showed that Alberta is on pace to surpass B.C.’s population in a little over a decade. Today, we dig into the impacts of an aging population and migration patterns in Calgary and Edmonton.

Canadian GDP - Finishing soft

It’s choppy waters for the Canadian economy. Numbers released this morning show that Canada’s output was flat in November after a 0.3% dip in October. With the advance estimate for December pointing to a 0.1% increase, the economy is on track to shrink slightly by an annualized rate of 0.5% in Q4 - just below the Bank of Canada’s flat estimate from earlier this week (an estimate that matched our own). That comes after a 2.6% advance in Q3, and a 1.8% drop in Q2. For the year 2025, we’re now tracking growth of about 1.5% (1.7% prior to today) - not great, but better-than-expected from when the trade war started.

Hanging out at 2.25% - BofC seems comfortable where they are

Both the Bank of Canada and the U.S. Federal Reserve were on hold this week.

Canada’s pause was so predictable that economists like myself had to find other things to write about.

The main news came from their new forecast, which points to sluggish growth ahead due to trade uncertainty and much slower population growth. We’re a broken record on this, but Canada’s economy desperately needs more growth from investment and exports, as it loses the population tailwind. The BofC agrees, but is cautious on investment and does not appear to be baking in the acceleration of major projects that has been much touted.

Our current view is that the Bank will keep its finger on pause through 2026. Inflation is still too high to lower rates; growth is too sluggish to raise rates. They seem content to hang out here for now.

As for the U.S. Fed, it was a near unanimous decision to hold at 3.5-3.75%, raising the political stakes as President Trump argues for lower rates. The Statement released by the Fed pointed to economic resiliency and still stubborn inflation.

Under review - CUSMA in the spotlight

CUSMA (short for the Canada-United-States-Mexico Agreement) has been getting a lot more attention than before the U.S. started imposing tariffs on Canadian goods last year.

The main point of CUSMA is to allow goods to move among the three signatories free of restrictions like tariffs. As such, even if overridden for emergencies or in the name of national security*, it is at least a partial bulwark against protectionist trade policy.

Fortunately for Canada, the U.S. decided to exempt goods covered by CUSMA** from its blanket tariff on Canadian goods. Given the unpredictable nature of U.S. trade policy under President Trump, there is no guarantee that this “CUSMA exemption” will be maintained.***

Making this an even more stressful situation is the fact that CUSMA is due for a pre-scheduled review by July 1 of this year. Basically, it’s a chance for the three countries to negotiate changes to the deal with the U.S. likely wanting to see concessions from Canada on things like supply management, Canadian softwood lumber, the North American content requirements for autos and auto parts, and Canada’s Online Streaming Act.

These, and other items that might be on the negotiating table, are important, but the biggest issue may be whether or not the “CUSMA exemption” survives. The best case scenario is CUSMA is renewed for another 16 years with the next annual review scheduled for 2032, the exemption is maintained and some of the sectoral tariffs are removed or decreased as a result of the negotiations.  The worst case scenario is the U.S. withdraws from CUSMA and the exemption dies with it. Our base case forecast assumes that, whatever the outcome of the review is, the exemption is maintained, but sector specific tariffs remain in place.

*President Trump has used the U.S. International Emergency Economic Powers Act (IEEPA) to justify broad tariffs and Section 232 of the Trade Expansion Act to justify tariffs on specific foreign imports such as Canadian lumber, steel, aluminum, kitchen cabinets, copper, and auto parts on the grounds that they “threaten national security.”

**To be covered by CUSMA, goods must meet country of origin requirements.

***If the U.S. Supreme Court strikes down the emergency tariffs, the need for the “CUSMA exemption” would go away temporarily, but would become key again if another justification for a blanket tariff is used.

Wake up call -  Eliminating internal trade barriers would yield massive gains

As the country searches every nook and cranny for growth, internal trade seems like a prime candidate. As former Bank of Canada Governor Stephen Poloz has said, “That’s free money, lying there on the sidewalk and everybody is refusing to pick it up.”

How important is it to remove trade barriers inside Canada?  According to the latest study by the IMF, the uplift to real GDP per worker in Canada could be seven percentage points.

So what has been done to date? The main thing from late 2025 is the Mutual Recognition Agreement for certain goods - a big breakthrough after years of inertia. It’s a start, but it excludes services and certain goods like food, live animals, alcoholic beverages, cannabis, tobacco, and plants. The IMF study suggests that about 80% of the gains could come from freeing barriers to trade in services. The study argues that mutual recognition should become the ‘default’ with only narrow exceptions.

Why the variation in benefits across provinces (see chart)? According to the study, “Smaller provinces and northern territories face costs that are multiples higher, especially in services such as retail trade, health, education, and professional services.”  

Interesting Fact: Battle of Alberta - Population edition

The Battle of Alberta on ice is not the same as in the 1980s. Those epic battles shaped my childhood. I still watch, but I’m also interested in population dynamics in the two major cities.

Since the post-COVID population boom, both cities have seen massive population growth, but the sources are different.

Calgary has seen stronger population growth overall…

• Calgary leads with 19.2% population growth between 2021 and 2025 versus 14.9% in Edmonton.
• Calgary moved faster with a population surge in 2023 and 2024. Edmonton took the reins in 2025 as the fastest growing Census Metropolitan Area (CMA) in the country. 

…but Edmonton is getting a stronger push from migration within the province

• Edmonton leads in intraprovincial migration. In fact, Calgary lost people to the rest of Alberta in the last two years.
• Meanwhile, Calgary has been seeing larger gains from newcomers from other provinces and other countries.  

Our hypothesis? People moved to Calgary first. Housing prices increased in Calgary, and then there was movement to other parts of Alberta, including Edmonton. In other words, it seems people are chasing affordability inside the province  

Answer to the previous trivia question: The iconic Tiffany Blue Box was introduced in 1886.

Today’s trivia question: When did the House of Commons officially recognize February as Black History Month in Canada?