Canada stands to elect a more business-friendly government than has been the case in recent years but its trade-dependent economy could be in line for an increased level of deficit spending, analysts and investors said before Monday’s vote.
Spurred on by a global trade war, Canada’s new prime minister, Mark Carney, who leads the Liberal Party, and his main election opponent, Conservative Party leader Pierre Poilievre, have both proposed sweeping changes to boost economic growth.
The Liberals are expected to win the most seats, according to the latest polls, although the race is tightening.
While U.S. President Donald Trump’s tariffs are a massive risk for the Canadian economy, market observers said they are encouraged by the policy choices offered in the election.
“I think Canadians should feel really good about their choices this time around,” said Barry Schwartz, chief investment officer at Baskin Wealth Management. “You have to be the most bullish you can be on Canada for ten years.”
Canadian GDP per capita, a measure of living standards, has barely increased in the years since Carney’s predecessor, Justin Trudeau, came to power in 2015, held back by lackluster productivity growth.
Carney, who worked for Goldman Sachs before running the central banks of Canada and Britain, has canceled a proposed increase in capital gains taxes that was unpopular with investors. His government is aiming for free trade within the country by July 1, while both he and Poilievre have promised to fast track energy projects to diversify oil exports away from the United States.
“There is now a catalyst and momentum to do things that should have been done for decades,” said Tony Stillo, director of Canada economics at Oxford Economics. “Everything from internal free trade to not putting all our eggs in the U.S. basket as far as a trading partner.”
Canada sends about 75% of its exports to the United States, including steel, aluminum and autos, which have been hit with hefty U.S. tariffs, while its role as a major oil producer could leave it particularly vulnerable to a downturn in the global economy.
The IMF has slashed its Canadian growth forecast to 1.4% in 2025 and 1.6% in 2026 from 2% projected for both years in January.
But one positive is the move to a more business-friendly Canadian government, said Greg Taylor, a portfolio manager at Purpose Investments, adding the threat of tariffs has galvanized the country to take measures to raise productivity.
“The market is already assuming, because of the polls, that Carney is going to win,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. “He has already jettisoned some of Trudeau’s less popular policies and I think he is more likely to move closer to Europe.”
DEFICIT SPENDING
Election platforms released by the two main contenders in recent days show the Liberals planning to spend more than the Conservatives, while the Conservatives plan bigger tax cuts.
Oxford Economics’ Stillo said the Liberal platform offered massive fiscal support for the economy, estimating additional deficit spending at 2.5% of GDP over the next four years compared to 0.3% in the Conservative platform.
His analysis included some adjustments to the candidates’ numbers, including stripping out the estimate for revenue gains from stronger economic growth in the Conservative plan.
Investors tend to favor the mix of tax cuts, lower deficits and deregulation promised by Poilievre. The Canadian dollar would likely rally on a surprise Conservative victory while a Liberal win could reduce the need for additional Bank of Canada interest rate cuts and add to already elevated debt issuance, say some analysts.
Still, Carney’s experience as a central banker could reassure investors.
“The market looks at Carney and says ‘he’s one of us, we’ll be alright’,” said Adam Button, chief currency analyst at ForexLive.
