Canada
U.S. tariffs on key Canadian exports, including energy products, aluminum, steel, and any products that are not qualified as covered under the Canada-U.S.-Mexico Agreement (CUSMA), have now clearly bitten into the country’s economic growth, with both the latest GDP figures (-0.3% month-over-month in August), and employment numbers seeing material and negative downturns over the last several months (despite September’s employment surge). The uncertainty created by the re-structuring of the global economic structure is also negatively impacting nations across the world, further reducing demand for Canadian exports. While the federal government works with the private industry to roll out infrastructure projects to drive up economic activity and build out a stronger economy over time, businesses and consumers have been curtailing spending. This has added to the negative GDP growth (-1.6% y/y) in the second quarter, and with the latest other economic indicators pointing downwards, it portends a possible recession (i.e., two or more quarters of negative GDP growth) if the trend continues in the third quarter. Despite its slowing economy, the country’s main equity index, the S&P/TSX Composite, continued to set record highs, with the Financials (i.e., banks), Materials (i.e., gold, silver, uranium) and Information Technology sectors leading the way year-to-date.
United States
The economy has begun to show clear signs of slowing, weighted down by the impact of tariffs on an ever-increasing number of imports, and the general uncertainty created by the Trump administration’s often confusing and mercurial economic policies. Both GDP and employment have slowed noticeably in recent months. Crackdowns on illegal, and significant reductions in legal, immigration are also hurting employment numbers, which have flatlined recently. The federal government’s shutdown has created a statistical information vacuum, further increasing uncertainty around the state of the economy. With the effects of the earlier front-loading to build-up inventories ahead of impending tariffs now largely faded, businesses are feeling the full brunt of tariff-related costs. This is pushing up inflation numbers (3% y/y in September) and setting the stage for increasingly stagflationary conditions (i.e., flat to negative growth plus elevated or rising inflation). Despite these numerous challenges, U.S. equity markets have soared over the third quarter, reaching record highs, lifted by the AI theme and a more dovish (i.e., rate-cutting) Federal Reserve (Fed) monetary policy, with the central bank cutting their trend-setting rate by 0.25% and October. While a further quarter-percent cut is now in question before yearend, many Fed watchers expect the central bank will have little choice but to do so given the increasingly poor outlook for the overall economy.
Europe
The region has continued to see only anemic growth in 2025, with the IMF projecting less than 1% GDP growth for the year. The region’s economy has been undermined by the uncertainty unleashed by U.S. tariffs and trade policy, and a general slowdown in global demand. Even the region’s largest economies - France, Germany and Britain – are expected to post only meagre growth this year, and experience projected growth of just over 1% in 2026. France’s government fell – again – in early September, with that instability contributing to a surge in the country’s sovereign bond yields. Germany’s recent turn to stimulative fiscal policy has boosted growth hopes for the future, but the impact of that spending is only expected to be felt further into 2026 and beyond. However, despite the challenging environment, if macroeconomic data can hold up in the coming months, and the “trade deals” made with the Trump administration result in a reduction of the uncertainty plaguing the region, the strong performance of European equities (MSCI European Index is up 30% YTD as of October 30 in US$) is likely to hold for the rest of 2025, and possibly into 2026.
Emerging Markets
Emerging-market (EM) equities have, for the most part, more than recovered from the broad sell-off that occurred after U.S. President Trump announced sweeping global tariffs in early April. The MSCI Emerging Markets Index added over 34% year-to-date (as of October 30 and in US$). The rebound came after Trump delayed implementing tariffs and reduced some. The U.S. dollar has fallen this year, and there is the potential for further weakness as the dollar Index is still about 20% overvalued based on purchasing power. The weaker U.S. dollar has been beneficial to recent EM Markets performance, and history shows that additional weakening in the greenback would be positive for EM market equities. Valuations are not as attractive as they were earlier this year, and we will need to see better earnings growth in the coming years to improve the odds of sustained returns.
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