Royal Bank of Canada has warned that Canada faces mounting economic risks and widening sector strains, citing persistent trade uncertainty, elevated household debt and uneven regional performance as key challenges for the coming quarters. In its latest economic outlook, the bank said the lingering threat of tariffs on Canadian exports has dampened business investment and clouded the outlook for manufacturing and resource-dependent regions.
RBC highlighted that elevated interest rates have not fully transmitted through the economy, keeping borrowing costs high for consumers and smaller firms. Although headline inflation has cooled from its 2022 peak, sticky shelter and services prices continue to erode household purchasing power. The report identifies manufacturing, oil and gas, retail and hospitality as the most strained sectors, while technology, professional services and parts of renewable energy remain resilient. This divergence is creating a two-speed economy, with growth increasingly concentrated in major metropolitan areas.
Meanwhile, the Canadian dollar weakened against the U.S. dollar as trade tensions and expectations that the Federal Reserve will keep interest rates higher for longer weighed on the loonie. The Bank of Canada’s more cautious policy stance contrasts with the Fed’s hawkish signals, widening the interest rate differential in favor of the greenback. For households, a weaker currency makes imports and travel more expensive, while businesses face a mixed picture: exporters gain competitiveness, but companies reliant on imported inputs face higher costs. For digital asset markets, the combination of U.S. dollar strength, higher-for-longer Fed policy and global trade uncertainty may reinforce a cautious risk environment.
