impact on business and consumer intentions.

“Canadians are more worried about their job security and financial health as a result of the trade tensions, and they intend to spend more cautiously. Job security concerns increased particularly among workers in export-oriented

industries, including manufacturing, mining, and oil and gas.

“Businesses have lowered their sales outlooks, notably in manufacturing and in sectors that depend on discretionary spending by households. Credit has become more difficult to access for some businesses, and with a weaker Canadian dollar, the cost of imported machinery and equipment has risen. As a

result of all these trade-related factors, many businesses have scaled back their hiring and investment plans.

“Our surveys also suggest business intentions to raise prices have increased as they cope with higher costs related to both uncertainty and tariffs. At the same time, inflation expectations have moved up as Canadians brace for the possibility of higher prices.

“The recent shift in consumer and business intentions is expected to translate into a marked slowing in domestic demand in the first quarter of this year. At the same time, merchandise trade data suggest businesses on both sides of the

Canadian border have stocked up on imports in advance of tariffs. As a result, Canadian exports and imports are both expected to be stronger in the first quarter. But the impact on exports looks to be bigger, which should provide some

offset to weaker domestic demand in the quarter.

“Of course, this pull-forward in exports likely means weakness ahead. If household and business spending intentions remain restrained, the combination of weaker exports and soft domestic demand would weigh further on economic activity in the second quarter.

“The impacts of uncertainty and tariffs on inflation are more difficult to assess. Uncertainty that weighs on household and business spending tends to put downward pressure on inflation. And new tariffs will hurt our exports and weaken

business investment. But costs are rising too, and this will put upward pressure on inflation. A weaker Canadian dollar and new retaliatory tariffs both make imports more expensive. Businesses are also telling us that uncertainty itself

imposes new costs.

“It will take some time for the impacts of higher costs and weaker demand to work their way through the economy and affect the prices Canadians will face. Governing Council will be tracing the impact of cost pressures through to consumer prices. We will also be closely monitoring inflation expectations. Keeping medium- and longer-term inflation expectations well anchored is imperative to ensure any rise in inflation is temporary.

“Let me wrap up.

“We ended 2024 on a solid economic footing. But we’re now facing a new crisis. Depending on the extent and duration of new US tariffs, the economic impact could be severe. The uncertainty alone is already causing harm.

“Monetary policy cannot offset the impacts of a trade war. What it can and must do is ensure that higher prices do not lead to ongoing inflation. The focus of Governing Council will be on assessing the timing and strength of both the downward pressure on inflation from a weaker economy and the upward

pressure from higher costs.

“As always, the Bank will be guided by our monetary policy framework and our commitment to maintain price stability over time.

“With that, the Senior Deputy Governor and I would be pleased to take your questions.”

(Reporting by David Ljunggren, editing by Promit Mukherjee)

((Reuters Ottawa bureau; david.ljunggren@tr.com))

Keywords: CANADA CENBANK/MACKLEM