Deloitte Canada

expects the

Canadian economy

will avoid a technical recession, with a return to low growth in the third quarter, according to its latest outlook released on Monday.

“We expect the economy to limp along in the third quarter but now think that a technical recession can be avoided with growth rates running below potential but still on the positive side of the ledger,” the report said.

The current view marks a change from their previous outlook released in April, which had Canada’s

gross domestic product

(GDP) contracting by 1.1 per cent in the first quarter and 0.9 per cent in the third quarter of this year. Monday’s outlook revised third quarter GDP up to a positive 1.2 per cent.

Looking to next year, the report forecasts growth will improve, with Canadian economy set to grow by 1.7 per cent. This is thanks to an improvement in business confidence going into next year.

“We do expect business confidence to improve,” said Deloitte Canada chief economist Dawn Desjardins. “Really it’s this combination we’re anticipating where we see policy changes that are moving in the right direction in terms of alleviating some of the barriers, either to internal trade for example, but also to getting things done.”

The

unemployment rate

currently sits at 7.1 per cent, with a net loss of 38,500 jobs since January, mostly concentrated in manufacturing, agriculture, transportation and warehousing and business, building and other support services.

Desjardins said they expect the labour market to hold, with no substantial layoffs outside of trade-impacted sectors. This could help a slow recovery for the Canadian

housing market.

“We don’t see employment falling off a cliff; doesn’t mean the

labour market

won’t be soggy in the near-term, but it’s not a question of massive job losses,” she said. “Job losses to date have been pretty much concentrated in areas that are deeply affected by tariffs.”

Deloitte’s forecast is predicated on Canada keeping carveouts under the

Canada-United-States-Mexico-Agreement (CUSMA)

, with the report estimating Canadian exporters to the U.S. faced an effective tariff rate of 2.9 per cent in July, lower than most of its G7 counterparts, Mexico and China.

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But as CUSMA is up for review next year, Desjardins said they did play out a risk scenario that includes Canada losing its tariff-exemption status under CUSMA.

“That would have a much more dire effect on the economy,” said Desjardins. “Over time, that takes about two and half per cent off our GDP … over a five-year period.

• Email: jgowling@postmedia.com