The July 1st deadline to extend the Canada-U.S.-Mexico (CUSMA) agreement for another 16 years slipped by this week, with the U.S. declining to extend, but that outcome was communicated well in advance by all three parties, TD Economics wrote in a note.
It is business as usual for now, with most of Canada's exports to the U.S. tariff-free, and with the onerous tariffs continuing on steel, aluminum and autos. Uncertainty will also persist as the three parties will now engage in annual reviews, economist Rishi Sondhi said.
"We have tentative evidence that the worst of the trade conflict may be in the rearview. For instance, manufacturing GDP has risen in two of the last three months through April, and may have increased again in May given a pick up in hiring," he added.
Canada's economy is now on track to grow at above 2% annualized in the second quarter, when StatsCan's GDP guidance for May is included, which is above what the Bank of Canada had forecast in its April projection.
"Even still, it doesn't materially change our view on rates. Remember that the bounce back in GDP comes of heels of several quarters of soft activity, meaning that the economy is still likely in excess supply," Sondhi said.