The latest round of trade tensions and tariff policies has left Canada’s economy in a precarious position – and for insurers, the picture remains far from clear. Speaking at an AM Best market briefing, Jeff Mango (pictured), managing director at AM Best, said that the economic environment is being reshaped by the ongoing disruption to global trade, and that its ultimate effects are still impossible to predict.
“At this point, it’s a little too early to tell how the trade talks are going to go, particularly with the tariffs so far,” Mango told attendees, “and what they impact and how they're going to impact the inflation.”
That uncertainty, he suggested, is reverberating across Canada’s insurance markets – from property and casualty to life and annuities – as export activity contracts, investment slows, and business sentiment remains cautious.
Mango noted that the economic drag from tariffs is already visible in the data. Canadian exports fell by about 7.5% in the second quarter, with the sharpest declines coming early in 2025. He said the first part of the year saw “a sheer drop in the export numbers due to the tariff impact,” driven largely by reduced shipments to the United States, which accounts for roughly three-quarters of Canada’s exports.
While exports to China, Mexico, and Germany have increased modestly, he said those gains have not been enough to offset the broader losses. The result is a weaker trade balance and an economy that remains heavily exposed to the outcome of US policy decisions.
Mango pointed to AM Best and IMF data showing that Canada’s real GDP growth contracted by about 1.45% in the second quarter, with forecasts calling for just 1.4- to 1.6% growth through 2025-26. “Household and businesses, we’ve seen continue to retrench due to heightened uncertainty,” he said.
That caution is reflected in the latest business outlook surveys. Negative sentiment, he said, has deepened since the start of 2025, largely tied to trade policy and concerns over financial and political conditions.
“There was a bit of a recessionary talk back when that’s kind of weaned off a bit,” Mango said, adding that recession risk estimates have fallen slightly – “from potential recession in the 32% range down to about 28%. I guess you’d take that as a good thing.”
The weakness extends to consumers, whose spending habits are shifting under the weight of inflation and uncertainty. According to AM Best’s consumer survey, more than a third of respondents are cutting back or delaying major purchases, while others are either saving more or dipping into savings to manage higher costs.
“People have said that they’re limiting spending and purchases,” Mango said, noting that many are either trying to save more or scaling back on expenditures altogether.
Those behavioural shifts, he added, ripple directly into the insurance sector by softening demand for new coverage, investment products, and large-ticket financial commitments.
Inflation remains another key variable. Mango noted that headline consumer prices are hovering slightly above the Bank of Canada’s 2% target, though pressures vary widely across categories. Shelter and rent costs remain elevated, while energy prices have eased following the removal of carbon taxes.
He said it remains too early to gauge how ongoing trade negotiations and tariff developments will influence inflation trends. Recent interest rate cuts by both the Bank of Canada and the US Federal Reserve, however, suggest that monetary policy could begin to stabilize prices in the months ahead.
“At this point, it’s a little too early to tell what how the trade talks are going to go, particularly with the tariffs so far, and what they impact and how they’re going to impact the inflation,” he said.
Labour market trends, meanwhile, tell a mixed story. Unemployment has edged above pre-pandemic levels, rising from 5.7% in 2019, with job losses concentrated in manufacturing, transportation, commodities, and energy – sectors most exposed to trade disruptions.
Despite that, overall employment continues to grow in service industries less tied to global supply chains. Mango said those patterns will likely feed into insurance demand as households rebalance budgets and businesses reassess their exposure.
Mango closed by urging industry professionals to monitor these developments closely. Every indicator – from exports to inflation – feeds back into risk models, investment portfolios, and pricing assumptions across the insurance spectrum.
“As insurance professionals, what does that mean?” he said. “What does that mean for the P&C market? What does that mean for the jobs market? What does that mean for life and annuity? It’s right across the board… just keep that in the back of your mind.”
