The Canadian economy is expected to slow amid the risk of tariffs and an escalating trade war. While the exact scope and scale of these tariffs remains uncertain, we can make an educated assessment of their effects on the Canadian economy at a regional level. This week, we take a closer look at Canada’s two westernmost provinces. Given their lower reliance on manufacturing, BC and Alberta are unlikely to experience the same strain from US tariffs as more industrialized regions, but key sectors like oil, lumber and canola still face challenges.
British Columbia
BC’s economy is expected to see accelerated growth in 2025 following last year’s tepid performance. While real GDP growth will remain below the province’s historical average, it is expected to outperform most other regions. With more Canadians expected to spend their tourist dollars at home, BC’s tourism sector will likely be a bright spot for the economy.
Tariffs will further dampen an already weak outlook for non-residential construction. However, BC is relatively insulated from US tariffs, with exports to the US accounting for just 8 per cent of the province’s nominal GDP. That said, roughly 70 per cent of BC’s total production is sold south of the border. The lumber sector, in particular, will face mounting challenges, with new tariffs stacked on top of existing duties. However, California—one of BC’s key lumber markets—has few alternative suppliers and may be forced to absorb the additional costs as it undertakes a massive rebuilding effort following the recent wildfires.
Meanwhile, BC’s natural gas sector has benefited from strong pricing performance and should see increased demand with the launch of LNG Canada.
The province’s unemployment rate is expected to rise by roughly 0.5 per cent. Weaker employment and consumer confidence will also weigh on the housing market, leading to softer home sales and price declines. However, most of the downward pressure on prices will likely result from the supply overhang in the condominium market.
Alberta
Alberta is expected to fare better than most regions this year. The TMX pipeline expansion helped boost production by 5 per cent last year, reaching a record 4 million barrels per day. Despite tariff threats, producers are looking to increase volume and expand markets beyond the US. Currently, roughly half of the TMX pipeline’s current production is sold to the US.
Western Canadian Select (WCS), a heavy crude product, typically trades at a discount to the benchmark West Texas Intermediate (WTI) due to quality differences, transportation challenges and market access issues. Expanding market access is critical to minimizing the price differential between WCS and WTI. Also, the threat of 25 percent tariffs on any country buying Venezuelan oil will be positive for WCS, as it is also a heavy oil.
China’s 100 per cent tariffs will have an impact on canola farmers. The province has budgeted $4 billion to manage the response to the tariffs. Fortunately, the largest part of Alberta’s canola-based exports, canola seed, is exempt from China’s tariffs. The federal government has also increased the payment cap under the AgriStability program, which functions like crop insurance, to $6 million.
Although we expect to see some employment pressure in the oil patch, the overall impact on the labour market should be muted. Housing sales are likely to be down slightly from 2024, but prices are expected to remain positive, with a gain of around 4 per cent.
Housing Affordability Watch
CMI monitors the latest developments and offers insights on solutions to Canada’s housing affordability crisis
Housing and productivity are more connected than we think. Cities thrive when they function as efficient labour markets, but regulatory burdens stifle development and growth.
In our latest Housing Affordability Watch, we explore how regulations in Canada’s major cities are impacting affordability and productivity, and why the Municipal Land Use and Regulation Index must be overhauled to drive more effective policy decisions.
Read it here: Housing and Productivity – Are We Measuring the Problem Effectively?
Independent Opinion
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