The U.S. is under the economic weather, meaning 'one hell of a cold or the flu' for Canada, economists fear

WASHINGTON, D.C. — Grocery prices are elevated, gas prices are high , job markets are cooling, and U.S. President Donald Trump is sticking to his tariff plans while the world eyes a shaky ceasefire with Iran.

The two-week truce this week between the U.S. and Iran has raised hopes and markets while lowering oil prices somewhat — Brent is now in the mid-US$90s per barrel, down from a conflict peak of $120 — but there are already signs that peace may not last: There are disagreements over Lebanon’s inclusion in the ceasefire, Israel is vowing to continue hitting Hezbollah, and Tehran has said continued hits on Lebanon render any negotiations pointless.

Collectively, the economic stress of the past year’s trade tensions, uncertainty, and now the risk of a Middle East war is hurting consumer confidence, and many economists are worried about a global economic slowdown.

“All roads now lead to higher prices and slower growth,” Kristalina Georgieva, managing director of the IMF, said recently, noting that the degree of the shock will depend on whether the ceasefire holds.

Some economists are going so far as to point to a possible recession.

“Recession risks thus remain uncomfortably high, with close to even odds of a downturn in the coming year,” wrote Mark Zandi, chief economist at Moody’s Analytics, in a LinkedIn post this week. 

Zandi pointed to his team’s Vicious Cycle Index (VCI), an upgraded way of looking at the Sahm Rule, which adjusts unemployment for participation drops. The VCI, Zandi said, has signalled a U.S. recession since January 2026, and he warned against taking solace in March’s payroll employment gain.

“(That gain) comes after a big decline in February… ,” he explained, noting that “few jobs have been added since Liberation Day a year ago, and without health care, the economy would be losing jobs. And all of this before the economic fallout from the hostilities with Iran hits.”

Moody’s broader-gauge AI recession model, meanwhile, puts the odds at about 49 per cent that the U.S. will dip into a recession over the next 12 months. Goldman Sachs is at 30 per cent.

Following a renewed tariff push, rhetoric signalling that Trump sees the Canada-U.S.-Mexico Agreement as “irrelevant,” and the oil price shock caused by the Iran war, it’s little surprise that Canadian consumer confidence is at an 11-month low. 

Just 15 per cent of Canadians believe there will be a stronger economy in six months, compared to 27 per cent a month ago. 

“When you have uncertainty, people will buy less, and they will not make big investments,” said Fen Hampson, a professor of international affairs at Carleton University.

“That’s when you kind of get into your so-called stagflation scenario.”

U.S. GDP growth decelerated last year to an annual rate of 2.1 per cent, down from 2.8 per cent in 2024. There was a -0.5 per cent contraction in the first quarter of 2025, but growth remained positive the rest of the year and is forecasted to be modestly positive in Q1 2026, according to the Bureau of Economic Analysis. 

Unemployment in the U.S. is at 4.3 per cent, down from 4.4 per cent in February, and the labour market added 178,000 jobs, mostly in healthcare, construction, and transportation. But the labour force participation rate fell to 61.9 per cent, and economists suggest that the fall in participation levels masks higher unemployment. 

Steve Hanke, professor of applied economics at Johns Hopkins University who served on former U.S. president Ronald Reagan’s Council of Economic Advisors, points out that job creation collapsed in the U.S. last year, dropping from claims of 2.2 million jobs to just 181,000, and manufacturing jobs plummeted by more than 100,000.

‘There was essentially no job growth, and if you look at tariffs, the damage they did was tremendous,” Hanke explained. “Trump promised to bring back manufacturing jobs. If you believed the spin, you would think manufacturing is booming.”

Things were already slowing down before the war in Iran, so it’s that much worse now, Hanke added. 

“The scenarios are all either bad or very, very bad. I’m on the very, very bad end of the spectrum,” he acknowledged. 

U.S. consumer confidence, meanwhile, rose slightly in March, according to Conference Board data, which focuses on jobs and the current economy, thanks to improved views of the job market and business conditions. But, at the same time, views about the future of the economy dimmed, with expectations falling into near-recession territory.

The University of Michigan Consumer Sentiment survey, which looks at prices and pocketbook pressures, meanwhile, dropped sharply in March, hitting a low for the year amid the Iran war, which pushed gas prices north of US$4 a gallon.

“There’s a huge uncertainty with regard to where the war is going to go, where oil prices are going to go, and uncertainty is the enemy of confidence in the business community,” said Thomas Duesterberg, a trade expert and senior fellow at the Washington-based Hudson Institute, earlier this week.

“So you’re going to see investment remaining somewhat weak, and all of that portends slower growth, and if oil prices continue to be high, then the likelihood of recession in four, five, six months is elevated.”

Inu Manak, senior fellow for international trade at the Council on Foreign Relations, is also keeping an eye on Iran. 

“If (tensions) go on past June, I would be very worried,” she said. 

“Gas prices have been out of control … if people cannot plan their lives, that’s when you start to see sentiment really drop.”

Beyond oil prices is the risk of other global economies falling into recession.

“A potential recession depends on oil prices and for how long the rest of the world will enter a recession before the U.S. does,” said Andrew Hale, fellow at Washington-based Advancing American Freedom. “But major recessions in Europe and East Asia would hurt the U.S.”

Whatever economic pressure hits the U.S., Canada will feel it first and bear more of the brunt, economists warn.

Canada’s economy is far more trade-dependent, noted Hanke, with its imports and exports equaling two-thirds of its GDP, while trade only accounts for a quarter of U.S. GDP, he explained. 

“If the U.S. gets a sniffle,” he concluded, “Canada gets one hell of a cold or the flu.”

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