Uncertainty Reigns as US Tariffs Exacerbate Economic Risks Across North America
The implementation of US tariffs on goods from Mexico and Canada has created a perfect storm of economic uncertainty for businesses, policymakers, and decision-makers across the continent. The latest round of Reuters polls of economists gathered this week reveals that the risks to the Mexican, Canadian, and American economies are piling up, with nearly every economist polled predicting an increased risk of recession in their respective economy. The chaos created by the US tariffs has made it almost impossible for forecasters to predict growth, inflation, and interest rates well into the future.
US Inflation Risks Worsen Amidst Ongoing Tariff Uncertainty
The imposition of 25% tariffs on imports from its neighboring trading partners and the removal of these tariffs on two separate occasions have left economists scrambling to understand the economic landscape. The latest survey found that US inflation risks are continuing to worsen, with nearly 70% of respondents predicting a higher inflation outlook for the world's largest economy by 2025. This increased uncertainty is forcing the Federal Reserve to remain on the sidelines for several months at least, leaving businesses and investors in limbo.
Canadian Economy Faces Rebounds as Recession Risks Mount
The survey also reveals that nearly every economist polled (70 of 74) across Canada and Mexico said that the risk of a recession in their respective economy had increased, suggesting a significant shift in the economic outlook. This has left policymakers scrambling to respond to the mounting risks, with the Bank of Canada likely to cut its overnight rate by 25 basis points on March 12 as a precautionary measure. However, even this move may not be enough to stem the tide of uncertainty that is plaguing businesses and investors across North America.
Mexican Economy Continues to Suffer Amidst Ongoing Tariff Threat
The threat of US tariffs has taken a toll on Mexico's economy, with analysts predicting that the ongoing economic slowdown and uncertainty surrounding Trump's trade policy will continue to weigh heavily on growth. While a tariff reprieve was granted earlier this week, experts caution that inflation risks are complicating the picture for Mexico's central bank (Banxico). Banxico is expected to cut its rate by 50 basis points in March but may need to reassess its strategy if tariffs persist and inflation continues to rise.
US Economic Outlook Remains Shrouded in Uncertainty
The impact of US tariffs has been severe, according to economists polled for the survey. The uncertainty surrounding Trump's on-again-off-again approach to trade policy is making it increasingly difficult for forecasters to predict a clear direction for the economy. Some economists are running dual scenarios – one with tariffs and one without – but even this may not provide sufficient conviction about which path the economy will take.
Near-Term Inflation Outlook Shifts Towards Higher Prices
The poll results show that nearly 85% of respondents (42 of 50) said that the risk to near-term inflation in the US has shifted towards higher prices. This increased uncertainty is a major concern for policymakers and investors, who are struggling to navigate the rapidly changing economic landscape. The shifting inflation outlook adds another layer of complexity to an already challenging economic environment.
Federal Reserve Rate Decision Remains Uncertain
Despite poll medians predicting that the Fed will lower rates twice this year, reaching 3.75%-4.00% by end-2025, a significant minority (45 of 101) sees one reduction or none. This uncertainty has left economists and investors searching for clarity on the Federal Reserve's next move. The Bank of Canada rate decision, likely to be nuanced due to the ongoing economic risks, remains too difficult to call for some.
Recession Risks Intensify Across Continen
The overall findings suggest that the implementation of US tariffs is having a significant impact on businesses and policymakers across North America. With nearly every economist polled (70 of 74) predicting an increased recession risk in their respective economy, it's clear that the economic landscape has become increasingly uncertain.
Conclusion: Economic Uncertainty Reigns as US Tariffs Take Centre Stage
The chaos created by US tariffs is having far-reaching consequences for businesses and policymakers across North America. With inflation risks worsening, recession risks mounting, and interest rates uncertain, forecasters are struggling to navigate this rapidly changing economic landscape. The implementation of additional tariffs will add to the already-existing uncertainty surrounding trade policy and potentially exacerbate these economic risks further still.
As policymakers grapple with the ongoing US-China trade dispute and growing tensions between nations, the stakes are high. For now, the only certainty is that uncertainty reigns as economies across North America face significant headwinds in light of this ongoing tariff drama.