What’s Next for Canada? Policy, Economic and Energy Impacts of a New Government

Share
print
Download

Randy Ollenberger, Devin Dodge, CFA, George Trapkov, Michael Gregory, CFA June 23, 2025 Market Insights

Following Canada’s recent election, the country’s economic prospects have improved since earlier this year when the introduction of U.S. tariffs clouded the outlook. While the policies of U.S. President Donald Trump are largely seen as a key influence on the outcome of the election, the impact extends well beyond the cross-border relationship. Interprovincial trade barriers are coming down, Canada is actively working to diversify its trade away from the U.S., fast-tracking infrastructure projects – with an emphasis on energy and mining – and repairing international relationships.

To understand these trends and the potential investment opportunities, BMO hosted a panel discussion titled, “What’s Next for Canada? Policy, Economic and Energy Impacts of a New Government.” The conversation featured:

• Honorable Scott Brison, P.C., Vice Chair, BMO Wealth Management

• Michael Gregory, Deputy Chief Economist, BMO Capital Markets

• Randy Ollenberger, Managing Director, Oil & Gas, BMO Capital Markets

• Devin Dodge, Industrials Analyst, BMO Capital Markets

• George Trapkov, Vice President, Portfolio Manager, BMO Private Wealth (moderator)

“Politics changed in Canada as a result of the Trump administration,” said Scott Brison. “The tariff threat to the Canadian economy really did create a seismic shift in how Canadians were viewing politics at the time of the election.

Canadians want a leader who can not only manage the economy but also build a more resilient one – one that can thrive while remaining less vulnerable to external threats, said Brison. “In response to the shifting policy stance in the U.S., one of the main questions on the ballot for Canadians in the recent federal election was who could best deal with Trump and the tariff threat,” explained Brison.

“Although it’s still early, Canadians seem to be getting what they voted for,” said Brison, noting the relationship between Canada and the U.S. has improved dramatically.

For more timely insights on international trade and tariffs, visit the BMO Cross-Border Perspectives hub.

Canada’s resilient economy

“From an economic perspective, Canada is performing much better than expected since the initial announcement of U.S. tariffs,” said Michael Gregory. Currently, BMO Economics is projecting that real GDP growth will be 1.3% through 2026, which stands in sharp contrast to the 0.5% pace expected in April. Still, that growth is below the near 2.0% BMO forecast for Canada before the trade disruptions started. There are two key reasons for the improved economic outlook: the tariffs haven’t been as onerous as feared; and Carney’s pro-growth policies.

“The bigger challenge is the uncertainty created by U.S. trade policy and the impact it’s having on business and consumer confidence,” said Gregory. “Confidence continues to erode and that is spilling over into trade-related business investments,” he said. “We’re unlikely to see that investment perk up or our confidence show signs of being restored until we clear up this uncertainty about trade policy.”

A trade deal between Canada and the U.S. could go a long way to resolving that issue, but Gregory said it’s going to take time to regain that confidence.

Becoming an energy superpower

“North-South relations isn’t the only focus of the Federal government; Carney has also expressed a desire to transform Canada into an energy superpower. The industry is very hopeful that this policy shift will help create some additional LNG (liquefied natural gas) facilities off British Columbia to complement the facility that is just starting up,” said Randy Ollenberger.

“The reception in the oil patch has been very cautiously optimistic,” he said. “What the industry is looking for is a lot of certainty around the regulatory environment and costs. A big part of that revolves around the government’s desire to sell the world low-carbon barrels while striving to live up to the country’s energy ambitions. Many of the carbon capture projects have been on hold because of political uncertainty, ” he explained.

Devin Dodge agreed that the environment for large projects, like LNG, has improved. He also added that there’s more to Carney’s vision than fossil fuels, noting that renewables and low and carbon-free energy sources, such as hydro, offshore wind and nuclear, are part of the plan.

“There’s still a lot of things where the industry needs clarity on, but if we continue to move forward down this path where the government wants to see these things done, where it’s encouraging the industry, encouraging project sponsors, to move forward and creating the necessary conditions, we could be looking at an environment where you see several hundred billions of dollars of incremental investment made in Western Canada over the next five years,” he said.

Fast tracking projects

“Two years – that’s the target the Federal government has set to approve some of its more ambitious resource and infrastructure projects,” explained Dodge. He anticipates that the project list could include non-conventional infrastructure investments in Indigenous communities, as well as in Northern Canada, particularly around ports and access routes to those ports. “East-West electricity transmission could be another project to watch, with the easing of interprovincial trade barriers,” he said.

“That’s a big improvement from the current state, at least when we think about resource and energy projects,” Dodge said. “But those project schedules may not have shovels in the ground until 2027 or 2028.”

“Still, that timeline could benefit engineering consultancies and heavy equipment dealers and construction companies,” he said, although which companies within those industries will depend on the projects that come forward.

Setting a new course

Just weeks after winning the Federal election, Prime Minister Mark Carney has hosted a meeting of the G7 countries, introduced policies to speed up major projects and is meeting with leaders in Europe and rebooting relationships with countries such as India, Saudi Arabia, and China.

Domestically, Carney is also leveraging the strong nationalist sentiment within Canada to expedite the approval of major projects and help transform Canada into an energy superpower, both in conventional and clean energy. “One thing President Trump has achieved is the uniting of Canadians to an extent I've not seen in a long time around the need for economic growth, and things like major projects and uniting provinces around interprovincial trade,” said Brison. Even Quebec, which may not have been as receptive to the national energy project, is more receptive to the idea, he said.

“This is a honeymoon period still, and people want the candidates to succeed and for the Prime Minister to succeed, but there’s going to be challenges to get there, but early signs are very positive,” said Brison.

Transcript

Speaker 1:

What's next for

Speaker 2:

Canada?

Speaker 1:

On June 23rd, BMO hosted a discussion with industry experts to dive into the evolving Canadian political and economic landscape following the election of Prime Minister Mark Carney. Let's take a listen.

Speaker 3:

Welcome to Markets Plus we're leading experts from across BMO discuss factors shaping the markets, economy, industry sectors, and much more. Visit BMO cm.com/markets+for more episodes, the views expressed Here are those of the participants and not those of BMO capital markets, its affiliates or subsidiaries.

Speaker 4:

Good morning and good afternoon across the country. Welcome everyone. Welcome to BMO's discussion on the evolving Canadian political economic landscape following the election of Prime Minister Mark Carney. I'm true that everyone can join us today. We're having the discussion at a pivotal moment in Canadian and Global Affairs. Just days after the conclusion of the G seven Summit, which was held in Canada, we find ourselves of intersection of new leadership, shifting global alliances and changing economic priorities accordingly. We wanted to bring our experts for a quick 30 minute discussion on what the new administration means for Canadian businesses and investors. I'm George Rako from BO Private Wealth and I'm honored to be moderating today's discussion. Today's session will go very quickly, so I want to get started right away by introducing our panelists. First we have the honorables called Bryson Vice-Chair of BO Wealth, Michael Gregory, deputy Chief Economist at BMO Financial Group, Randy Berger, managing director oil and gas, BMO capital markets, as well as Devon Dodge Industrials analysts at BMO Capital Markets. And to start, I thought be most useful if we had each of our panelists provide high level overviews, how they're seeing the impact of the new administration in their respective areas. Scott has a longer distinguished career in politics and we're very happy that he can join us to provide his views on the global political landscape and implications for Canada and Canadian businesses. Scott, please go ahead.

Speaker 5:

Thank you George, and looking forward to the conversation. I think first of all, politics changed in Canada as a result of the Trump administration, Trump 47 being dramatically different than Trump's Trump 45, that administration much more emboldened and less constrained and much more apt to be unpredictable In many ways, the tariff threat to the Canadian economy really did create a seismic shift in how Canadians were viewing politics at the time of the election. And the ballot question became, who can best deal with the President Trump's tariff to a country like Canada? That depends on the US for over 70% of our exports, but secondly, who can manage the Canadian economy to build a more resilient Canadian economy and a more prosperous and growth focused Canadian economy. And so Canadians in the election chose Prime Minister Kearney to do that. They still want change. They did not vote for, and the conservatives, their message do not vote for a fourth liberal mandate.

That was a clever question in many ways because if Canadians thought they were going to get more of the same, they perhaps would be less inclined to vote liberal. This time they voted for Mayor Kearney because they believe that he represents the kind of chains that Canadians want and can trust. Since then, just a couple points, the relationship with President Trump has improved dramatically. The fact that President Trump refers to the Prime Minister of Canada as the prime minister of Canada, not governor of the 51st state, is more than symbolic. It is substantially reflective of a more solid relationship. My understanding is that there's progress on individual areas of prime minister to president and minister to secretary between the cabinets. Secondly, diversifying the trade relationship has been a focus of prime minister, prime Minister Kearney's from the beginning, even before the election in his first week of office, his first trip was to Europe.

The Canada Europe economic opportunity is very significant. Canada has has a free trade agreement with Europe, the seat of agreement, but there's a lot of room beyond that to really operationalize that. The Prime Minister has rebooted or is in the process of rebooting and reinvigorating the relations. Canada's relations with India, countries like India and Saudi Arabia, China, important trade and economic partners to Canada and ones with whom the relationship had some setbacks under the Justin Trudeau's time in office. Prime ministers also indicated that on the fiscal side, he is going to operate the, or rather balance the operating budget of the government of Canada within three years. And that's a significant challenge to achieve. But it's important. Government spending has grown by 9% per year for about a decade now. And public servants has gone from about 250,000 to about 350,000 federal public servants. And we struggle to provide high quality digital services from a blockbuster video government serving a Netflix citizenry.

So it's going to be really important. Something that sounds held of many of government operations I think are going to be focused on. And you'll see a real focus on getting spending under control growth. The Prime Minister's one Canadian economy commitment, getting rid of vi provincial trade barriers largely by July 1st is ambitious. There's a lot of work from provinces and Unity required, but there seems to be broadly a consensus on that. The major projects focus and getting the barriers out of the way and making it a more streamlined process to get major projects approved. Pipelines could be part of that. It could also be mining projects, could be l and g projects. The Prime Minister has purely stated he wants Canada to be an energy superpower in both conventional and clean energy. The expectation levels are high. Minister Tim Hodson has a big job to do and the Prime Minister has his back.

So I think things are aligned properly, but again, this is a honeymoon period still and people want the candidates to succeed and for the Prime Minister to succeed, but there's going to be challenges to get there. But early signs are very positive. Also, infrastructure and getting the infrastructure the Canada needs in a type fiscal situation with already significant deficits and a growing debt to GDP number and a potentially slowing economy. All of these things are being worsened in some ways by a really significant increase in defense spending to meet not just NATO targets, but a post Brett and Woods global defense environment. It's very clear and the Prime Minister has stated that to build the major projects, infrastructure, transportation, social infrastructure, even things like housing, it can't be on just on the government's dime and tax dollars. There's going to have to be a harnessing of institutional investment, pension fund investment, potentially sovereign wealth fund investment. And so you can expect to see more public private partnership where government money is leveraged with institutional investment. All in all, I think that he's representing at this stage a pro-business, pro-growth economic perspective and still a progressive government. So kind of a business oriented liberal that progressive conservatives would feel comfortable with. And so far his support is maintaining, but the expectations are high and he's going to have to deliver.

Speaker 4:

Awesome. Thank you very much for that, Scott. Very helpful. We always appreciate your insights into Canadian and global political. Let's keep giving your great experience in politics. Michael, do you want to give us an overview of how you're seeing the potential impact of Canadian, the new policies and impact on Canada?

Speaker 2:

Sure thing. Hi George. So listen, the bottom line is this, that Canadian economic prospects are improving. We currently look for real GDP growth to average 1.3% this year and next. And that contrast sharply with the half percent pace that we were expecting back in March and early April when we had the peak uncertainty concerning tariffs in the US. Now given 1.3 is an improvement, keep in mind that before the trade where we're started, we were looking for growth to be pushing close to 2%. Now, there are two reasons for the improvement. One of them is the trade war itself and tariffs are proving to be not as onerous on the Canadian economy as we're feared. And the second factor is that is the the tilt, the pro-growth tilt to government policy under Prime Minister Kearney and the fact that a lot of these policies are being executed in an expeditious fashion.

Okay, quickly on the first point on tariffs, we know how that scorecard sits. Right now, the 25 or 10% fentanyl related tariffs are only on goods that are not compliant with cosma. And of course, day by day the amount of goods that are compliant continues to rise. So that was better than expected. The 25 now 50% tariffs on aluminum and steel, there's no way to say anything, but the fact that that is much worse than expected. The 25% tariffs on automobiles and parts again turned out to be a little bit better than expected on the assemblies on the automobile side for cars assembled in Canada, the US content of that gets carved out. And for the Canada's fleet that's average is about 50%. And of course parts were completely exempt. And finally Canada did not get caught in the crosshairs of reciprocal tariffs. So when you add that all up, the burden of tariffs on the Canadian economy is lighter.

But what is not lighter though is the impact of US trade policy on uncertainty and tariffs broadly on confidence. Confidence continues to continue in sort of an eroded fashion. And of course that is spilling over into trade policy related business investment. And quite frankly, we're unlikely to seize that investment perk up or confidence show signs of being restored until we clear up this uncertainty about trade policy. And that's where the government's mission to get a trade and security deal inked and signed potentially by sometime next month. It could go a long way in restoring some of that confidence. It's unclear. Trade deals have been signed between our two countries before and some aspects of that have not even been honored. So the bottom line is that it may take a little bit longer than mere inking a deal before confidence comes fully back. But the other aspect of why we've got things is purely on the policy side.

On the tax side, we've seen just from the get go that the consumer carbon tax was axed along with the GST on new homes, purchased by first timers, the one percentage point reduction and the lowest tax bracket actually kicks in a week tomorrow. And this provides a lot more money in the hands of Canadians presumably going to spend and help the Canadian economy along. Scott's already mentioned that defense spending is picked up. The campaign promise to get to 2% of GDP by 2030 was expedited to get to 2% this fiscal year. Again, a huge boost to spending a lot of the other campaign, or sorry, the platform spending measures that were announced given that we don't have a budget to go by. Those are the kinds of things that look like they're going to take to add to growth going forward. And in fact, we do think that we'll probably get on average about a half a percent boost to GDP growth still by all of these policies being expedited going forward.

And now we saw with the one Canadian Economic Act, getting those medium term infrastructure projects expedited will also provide that lift for growth. It also begs the question, can we get back to 2% where we were before? Can we surpass that? Well, there's a chance we could. There's no question, particularly if we do get some of these nation building infrastructure projects expedited. But I guess the question has always been raised well, can we outpace the rest of the G seven in terms of economic? And the fact is the rest of the world is not standing by. Of course, we're seeing a huge infrastructure defense spending in Germany and other parts of Europe, of course in south of the border in the us, they aren't standing by. It looks like we're on a fast track here to deficit finance tax cuts at least for a few years, which of course would be a tremendous boost to the US economy. So I think Canadian prospects are improving. Can we talk to G seven? Well, we'll just have to see what happens. I'll leave it at that for now.

Speaker 4:

Thank you, Michael. This is very helpful. So let's start over to Randy Berger to give us an overview on the oil and gas sector and the opportunities and as we're trying to build the energy superpower of the world. Randy? Great, thanks, George.

Speaker 6:

Yeah, I mean the Canyon Oil and Gas Group is I think very cautiously optimistic about what they've heard from Prime Minister Kearney and his desire to build an energy superpower here. I think the industry is very hopeful that we see some additional LNG facilities built off the west coast of Canada. We have one starting up right now, LNG Canada phase one. We have two others that are in the pipeline that are expected to start up in 27 to 28 that are a bit smaller cedar and wood fiber. But phase two of LNG Canada is something that the federal government could certainly help the project partners with some confidence around what the regulatory framework would look like for that facility. And that would be very beneficial for Western Cadian natural gas producers as it's a meaningfully sized facility. And that would again allow the industry to continue to grow and continue to invest.

There are other LNG projects on the west coast of Canada, and again, anything the federal government can do to help facilitate those, whether it's working directly with the project sponsors or with the British Columbia government, which also has a very significant role in all of this, could be very positive from an investment perspective for the oil and gas industry in Canada. Because you have to remember, it's not just the investment in these facilities themselves, which is quite substantial, but it's the investment in drilling those incremental natural gas wells and all the services that come along with that. Now, media attention often is focused on the oil pipelines and what might happen there. I think what the industry is looking for really is a lot of certainty around the regulatory environment there. TMX was not a good experience for anyone from the perspective of how long it took, but also more significantly the cost.

And so simply if the federal government indicates that they're prepared to allow some of these oil pipelines to be built, whether it's Northern Gateway or some facsimile or an expansion of TMX, the project sponsors are going to be reluctant to go ahead with those projects. If it's going to cost what TMX costs, that really wouldn't make a lot of sense. So you need not just regulatory certainty around the timeline, but also the conditions on the ground terms of what are the sorts of things you need to take into consideration to build those pipelines. Now, something that gets lost in all of this as well is pathways and the carbon capture part of that equation. So I think Prime Minister Kearney has talked about a desire to sell the world, low carbon barrels and pathways would be a big part of that. And so I could envision where these pipelines, the quid pro quo for that is that the oil and gas industry moves forward with the carbon catcher projects that have been really on hold through this period of political uncertainty and represent in and of themselves a very significant investment pathways.

The first phase of that was originally envisioned to cost maybe 75 or 80 billion. A hundred billion dollars wouldn't be unrealistic. So you start thinking about the total investment opportunity here in pipelines, in pathways, in drilling additional oil and gas wells in building additional oil sands facilities to fill up these pipelines. And we were talking about potential capital expenditures that run into the 200 to 300 billion level, which we believe would be very significant for not only Alberta and British Columbia, but also Canada as a whole. So there is the potential here to see significant investment made by the oil and gas industry, not only in, as I said, production, but also in carbon capture facilities that facilitate some of these pipelines that facilitate the government's ambition to be an energy superpower. So I think cautiously optimistic is a good way to describe it all. I mean, none of this has been laid out yet in terms of what the framework would necessarily look like, what the approvals would look like, but also those on the ground conditions in terms of what are the environmental hurdles at a local level that you have to deal with to build these projects.

Because no one in the industry really wants to see another 30 billion pipeline. They're really thinking that the only way path forward here would be if you can build these pipelines much less expensively. I mean, keep in mind TMX was originally supposed to cost $7 billion and ended up costing 13 billion. Coastal gas link was only supposed to cost $6 billion, ended up costing 12 or more billion dollars. So the incremental costs that can get layered onto these types of projects can make them uneconomic, and the federal government also has a role to play there. So there's still a lot of things where the industry needs clarity on, but I think if we continue to move forward down this path where the government wants to see these things done, where it's encouraging the industry, encouraging project sponsors to move forward and creating the necessary conditions, we could be looking at an environment. Whereas I said you see several hundred billions of dollars of incremental investment made in Western Canada over the next five years, that benefits Canada more broadly. And I can leave it there. George.

Speaker 4:

Thank you much, Randy. This is a great recap. And as you talked about, it's two to $300 billion of capital expenditure over the next few years. So let's see what Devin Dodge fixed about this project and where is the opportunity, what actually starts the overall industry impact on Canada? Devon?

Speaker 1:

Yeah, thanks George. Afternoon everybody, or good morning, depending on where you are. So look, our comments are largely focused on these nation building projects. Look, I think Randy gave a very good perspective on some of the energy projects that could be coming forward here. From our perspective, it does seem like it's a lower bar to get some of these natural gas projects across the finish line. That would be largely LNG export facilities, but also potentially some pipelines to feed those facilities. And that would be potentially more meaningful for a lot of our coverage companies. Crude oil, it seems like it's going to be tougher to get some alignment across all those various stakeholder groups, but to the extent that additional pipeline capacity comes online, I think it'll have to be augmented by some carbon offsetting projects. I think Randy mentioned Pathways is probably the most visible there at the top there.

I think Scott mentioned that Prime Minister Kearney was focused on having getting Canada be an energy superpower. And again, I would emphasize this is taking a broader view than just traditional fossil fuels. It seems like renewables and low in carbon-free energy sources such as hydro offshore wind and nuclears increasing the optimism there as part of that objective. Beyond energy, we expect a range of projects that could be considered by the federal major project office. On the infrastructure side, look, Canada has a very well developed model for developing traditional infrastructure. We think we could see more, we're calling it non-conventional infrastructure investments. This could be investments in indigenous communities, it could be investments in infrastructure in Northern Canada, particularly around ports and access routes to those ports. Again, getting Canadian resources to tide water. I think we're likely to see more east west electricity transmission to the extent that interprovincial trade barriers can come down.

And then on the resource development side, I think the BC government's been very proactive in highlighting, let's say opportunities for some mining investments, maybe particularly in the golden triangle in Ontario, to bring a fire, this has been around for a couple of decades has been a lot of progress there to date, but potentially this could be a catalyst for bringing that forward. The other thing to mention here is that really want to reemphasize the timing. The federal government is looking to fast track these approvals. They're aiming for two years. That's a big improvement from the current state, at least when we think about resource and energy projects. But those project schedules may not have shovels in the ground until 2027 or 2028. So within our coverage, who could see the benefits? I think there's two main groups. One would be engineering consultancies. The second group would be heavy equipment dealers in construction companies.

So for the engineering consultancies in Canada, that means WSP, that means Stantec and Atkins, REALIS. Currently, the demand backdrop for these guys very strong. They're really just at the center of a multi-year and arguably a multi-decade spending trends. So these would be infrastructure, climate change, climate resiliency, energy transition, energy independence, reshoring. There's just a lot of positive things going on, and we would argue that any individual one of those would be meaningful for the sector, but to have them all at the same time just really paints a very positive backdrop for the group. If we narrow focus to Canada, I think activity levels in Canada and the backlogs, they're actually elevated right now. Activity levels are good. I think this gives us good visibility into demand in the next 12 to 18 months. So these nation building projects, we think the net benefit here is largely on extending that window of visibility beyond that 18 month window.

If we get anywhere close to the couple hundred billion dollars that Randy talked about, that would be very positive for the group. I think it's also interesting to note that the engineering consultancies, they can generate some revenues before final project approval. They have a lot of services geared to upfront, whether it's advisory, planning, permitting, environmental assessments, indigenous consultations, et cetera. I think as far as specific winners, hard to know for sure. I would say just generally the whole group should benefit and specifics will depend on the projects that come forward. That second group that we're going to talk about, heavy equipment dealers and construction companies, we pair these together largely due to the timing of the benefit, which is likely later this decade. But industry conditions have been, we'll say a little bit more. Mixed activity levels and mining and power have actually been pretty strong.

It's construction markets that a little bit more uneven currently and largely due to the commercial and residential construction activity being a bit soft. Infrastructure development generally pretty solid. As for winners, we think it very much depends on the specific projects and the regions where those projects occur in. We'd highlight that Canadian cat dealers, so that would be thinning in Western Canada and Torment and Central and Eastern Canada. And then amongst the construction companies, we think ACON could be well positioned here. They're infrastructure focused as well as bird construction, which is covered by my colleague John Gibson out in Calgary. But again, the last thing to emphasize here is just the benefits for this second group is still likely a few years out. So I'll leave it there, George.

Speaker 4: So we covered a lot of ground today, Scott, Michael, Randy, and Devin, thank you very much for this very insightful discussion. I think your analysis provided a lot, much needed context for our clients and to our audience, thank you very much for taking the time to join us today.

Speaker 3:

Thanks for listening. You can follow this podcast on Apple Podcasts, Spotify, or your favorite podcast app. For more episodes, visit bmo cm.com/markets plus.

Speaker 2:

For bm o disclosures, please visit bm.com/podcast/disclaimer.