By Indradip Ghosh, Gabriel Burin and Mumal Rathore
(Reuters) – Risks to the Mexican, Canadian and American economies are piling up amid a chaotic implementation of U.S. tariffs that has created deep uncertainties for businesses and decision-makers, according to Reuters polls of economists taken this week.
U.S. inflation risks, which were already rising, have worsened, leaving the Federal Reserve on the sidelines for several months at least, while for Mexico, Canada and the U.S., recession risks are also mounting, the surveys found.
U.S. President Donald Trump’s administration has threatened 25% tariffs on imports of goods from its two neighbouring trading partners and on Thursday removed them temporarily for a second time in only about six weeks of government.
This has made it nearly impossible to forecast growth, inflation and interest rates well into the future, economists say, even leaving the immediate Bank of Canada rate decision on March 12 – already likely to be nuanced – too difficult to call for some.
Seesaw tariff announcements have also unnerved Wall Street – the U.S. benchmark S&P 500 index has given up all of its gains since Trump’s November election.
Economists at top banks and research institutions who are regular participants in Reuters surveys spoke of chaos when reached for forecasts, many expressing exasperation over Trump’s on-again-off-again approach to trade policy.
“Given this is so uncertain and that there are new announcements every hour or so, it’s kind of unclear what the environment is going to look like. It’s hard to deny the risk of a recession has intensified,” said Jonathan Millar, senior U.S. economist at Barclays in New York.
“People are pushing off spending and that feeds through to a drag on growth, or perhaps even declines in growth if it’s strong enough. There’s a risk both in terms of higher inflation and downside for activity.”
Until now, economists have been loath to entirely factor into their forecasts the Trump administration’s volte-face on global trade policy, and the added uncertainty over how the change is being implemented is making forecasting even more difficult.
Some are even running dual scenarios, one with tariffs and one without, but without much conviction about which is most likely.
However, nearly every economist – 70 of 74 – polled this week across Canada, the U.S. and Mexico who answered a separate question said the risk of a recession in their respective economy had increased, suggesting the outlook had soured considerably across the continent.
The International Monetary Fund said on Thursday U.S. tariffs, if sustained, would have a significant adverse impact on Mexico and Canada.
“Even if these tariffs are rolled back, there is real tangible impact already … It just doesn’t look like a lot of this volatility will go away anytime soon and this is obviously not healthy for sentiment,” said Claire Fan, senior economist at RBC in Toronto.
For now, economists expect the Bank of Canada to cut its overnight rate by 25 basis points on March 12.
“There are a lot of things that are currently on pause as we all are trying to figure out what’s really going to happen …, which is really why we’re more reluctant to say anything definitive right now,” said Fan.
Citing widespread uncertainties, nearly 70% of economists have raised their 2025 inflation outlook for the world’s largest economy in the latest survey from last month.
And nearly 85% of respondents to a separate question, 42 of 50, said the risk to near-term inflation in the U.S. has shifted towards higher prices.
Just over half – 56 of 102 economists – expect the Fed funds rate to stay at 4.25%-4.50% by mid-2025. The rest, 46, expected at least one cut by next quarter, down from more than two-thirds who predicted that in a February survey.
Although poll medians predict the Fed will lower rates twice this year, reaching 3.75%-4.00% by end-2025, a near-45% minority, 45 of 101, see one reduction or none.
For Mexico, the future looks murky despite the latest tariff reprieve.
“The ongoing economic slowdown, as well as the uncertainty that persists for investors as long as Donald Trump remains in office, will continue to weigh on growth in Mexico,” noted analysts at Invex, an investment firm in Mexico City.
But there are inflation risks too, which have complicated the picture for Mexico’s central bank, known as Banxico.
“If tariffs are prolonged and inflation picks up, Banxico will be more cautious about cutting its rate. While we expect a 50-basis-points reduction in March, subsequent cuts would be in doubt,” said Ramon de la Rosa, economics deputy director at Actinver, another local investment firm.
(Other stories from the Reuters global economic poll)
(Reporting by Indradip Ghosh, Gabriel Burin and Mumal Rathore; polling by Purujit Arun, Renusri K and Jaiganesh Mahesh; editing by Ross Finley and Mark Heinrich)
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