Economists expect the

Bank of Canada

to cut its policy rate by 25 basis points on Wednesday, as policymakers grapple with a weakening economy brought on by trade uncertainty, weak business investment and a deteriorating labour market.

“All of those things add up to a lot of overall weakness and likely more weakness to come, especially if

layoffs

continue in some of the big sectors that are affected by

steel

,

aluminum

and car

tariffs

,” Jeremy Kronick, vice-president of economic analysis at the C.D. Howe Institute, said.

The central bank’s next

interest rate decision

on Oct. 29 comes amid renewed trade uncertainty after United States President Donald Trump cancelled talks over an

Ontario anti-tariff ad

and just days before a federal budget that promises generational investments aimed at rebuilding Canada’s economic resilience. Ontario Premier Doug Ford on Friday said the province will pull the ad on Monday.

A cut would put the overnight rate at 2.25 per cent, near the lower bound of what the Bank of Canada estimates is its neutral range.

Last month, policymakers cut the rate to 2.5 per cent, the first trim since March. The

unemployment rate

held at 7.1 per cent in September and the economy added 60,000 jobs, but Bank of Canada governor

Tiff Macklem

last week said he still expects the

labour market

and economic growth to remain “soft” for the rest of the year.

Gross domestic product

(

GDP

) in the second quarter contracted 1.6 per cent, and activity in the third quarter is expected to remain weak.

Compounding this weakness is newfound unpredictability about a possible deal with the U.S. on sectoral tariffs, given Trump’s announcement on Thursday about terminating trade talks over an advertisement critical of U.S. tariffs funded by the Ontario government. Over the weekend, the president said he would place an additional 10 per cent tariff on Canada.

The Canadian auto sector has also been hit hard, with

Stellantis NV

moving production of its Jeep Compass to Illinois from Brampton, Ont., and

General Motors Co.

ending production of its BrightDrop electric delivery van at its plant in Ingersoll, Ont.

“The unfortunate turn for the worse in trade uncertainty and the wave of announcements in recent days and weeks on the auto sector, with production shifting away from Canada, has tilted the balance in favour of more rate relief sooner,” Bank of Montreal chief economist Douglas Porter, said.

Canada’s

inflation rate

jumped to 2.4 per cent in September, with core measures of inflation running above three per cent. However, economists said the downside risks to the economy are outweighing any upside risks to the inflation outlook.

“What (policymakers) decided is that the risks of weakness in employment are more intense than any upside risk to inflation, and I tend to agree,” Porter said.

Royal Bank of Canada economists Nathan Janzen and Claire Fan said the recent business outlook survey by the Bank of Canada showed lower inflation expectations among businesses, which is in line with the central bank’s view that inflation risks are fading.

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“This essentially means more room and flexibility for the central bank to have looser monetary policy,” they said in a note.

The downside impact on the labour market remains contained to sectors that are reliant on U.S. trade and affected by tariffs, but Kronick said there is evidence this pessimism has spread to other parts of the economy.

“I don’t think you’re seeing big investments in other sectors that are not affected by U.S. trade because they rely on having a strong economy,” he said. “It already has spread, and I do suspect it will continue as long as this uncertainty exists.”

• Email: jgowling@postmedia.com