Mubasher: Canada could witness a spike in inflation and the country would “enter a deep recession,” if the recently announced US tariffs trigger a global trade war, Reuters cited a Bank of Canada scenario released on Wednesday.

The Canadian central bank did not issue its regular quarterly economic forecasts, yet provided two scenarios as to what might happen upon the high level of uncertainty.

In the first scenario, most tariffs are negotiated away and Canadian and global growth would weaken temporarily.  Canada’s inflation falls to 1.5% for a year and then returns to the bank's 2% target.

Meanwhile, in the second scenario, the tariffs spark a long-lasting global trade war; Canada enters a significant recession, inflation spikes above 3% in mid-2026 before returning to 2%.

Bank of Canada, which stressed that many other scenarios were possible, estimated annualized first quarter (Q1) GDP was 1.8%, down from the 2% it forecast in late January 2025.