Federal budget sets cautious recovery plan with little room for error

The 2025 federal budget attempts to guide Canada out of its current economic crisis, but it also underscores just how fragile the situation has become — and how little flexibility the country has as it contends with a trade war.

Finance Minister François-Philippe Champagne called the plan a “generational” one, arguing that Canada must act boldly to shape its future rather than slow down or retreat. The budget outlines several potential economic paths over the next five years. In the most optimistic case, U.S. tariffs would ease and global trade would stabilize. But the downside scenario paints a much tougher picture: the economy shrinking this spring, unemployment rising to roughly 7.4 per cent, and sluggish growth lasting years.

The likelihood of the weaker scenario is real. Economic data expected next month may confirm that Canada slipped into a recession over the summer, and unemployment has already been climbing.

The budget promises significant support for industries adapting to new global conditions, including large tax incentives to build new facilities and tools to help Canadian companies reach new export markets. However, economists warn that replacing lost trade with the U.S. will be extremely difficult — especially when the economy is already close to recession.

David Macdonald of the Canadian Centre for Policy Alternatives says the plan assumes trade disruptions will calm soon, but that may be overly optimistic. Sahir Khan from the Institute of Fiscal Studies and Democracy adds that many of the budget’s major investments won’t show results for years, meaning short-term economic pressures remain a serious concern.

The greatest challenge for the government isn’t just implementing ambitious reforms — it’s keeping the economy stable long enough for them to work. Staying out of a deeper recession, preventing unemployment from rising further and avoiding an escalation in the trade conflict will be crucial. But much of that depends on global forces outside Canada’s control.