New trade alliances, inflation down, & Atlantic wake-up call.

About this edition

Illuminating possibilities.

This week on the SMB Pulse, we look at how Canada is actively re-engineering its role on the global stage. The federal government continues to take action against US volatility by expanding its efforts to secure global supply chain networks and trading partnerships. Domestically, we are seeing a welcome, if cautious, cooling of price pressures.

Beyond the macro headlines, we cover a sobering wake-up call for the Atlantic business community. Frank McKenna’s latest statement highlights the urgent need to address the unsupported entrepreneur and the ‘patchwork economy’ of internal trade barriers that continue to stifle regional growth.

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EU-CPTPP alliance

Canada is looking for new trade partners.

A massive new alignment of middle powers is currently underway, with recent reports indicating that PM Mark Carney is spearheading a major new trade pact that would unite 40 countries and 1.5 billion people across the European Union (EU) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in a low-tariff trading bloc.

Carney doctrine: This movement aligns closely with the vision Carney recently articulated at Davos, advocating that middle powers band together to maintain economic and political stability. 

Canada and its allies would aim to create a "rules of origin" framework with the EU and the Indo-Pacific trading bloc, standardizing the economic nationality of products and guaranteeing goods produced within this 40-nation network can move with minimal friction.

Low tariffs: While initial fears of U.S. tariffs suggested strong headwinds, the actual impact has been more nuanced. System shock to the Canadian economy hasn't materialized, but specific sectors — most notably manufacturing — are feeling the squeeze. A low-tariff arrangement with the EU and Indo-Pacific partners serves as a de facto insurance policy, moving Canadian export reliance away from our southern neighbour and toward a global, rules-based network.

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Inflation cools down to 2.3%

Lower pump, shelter, and fruit prices.

Statistics Canada reported today that the annual rate of inflation ticked down to 2.3% in January, down from 2.4% in December. The decline was largely driven by a 16.7% year-over-year drop in gasoline prices. Moreover, shelter inflation — a persistent thorn in the side of the Canadian economy — showed signs of moderation, rising at its slowest pace in nearly five years at 1.7%.

Despite the cooling data, the Bank of Canada is unlikely to cut rates in the immediate future. Market analysts suggest the central bank will remain on hold unless USMCA negotiations deteriorate enough to weigh on growth or employment. With interest rates unlikely to fall soon, this period of stable inflation provides a measure of predictability for businesses and consumers alike.

In other news, Artificial Intelligence continues to be a primary driver of productivity and economic stability. The Canadian AI market is projected to reach a revenue of approximately US $362.9 billion in 2033, with a compound annual growth rate of 30.1% expected throughout — all the more reason for businesses to get in on the action by investing and upskilling with AI.

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Frank McKenna: Atlantic Canada in disarray

“Entrepreneurial instincts have atrophied in our region.”

Former New Brunswick Premier Frank McKenna issued a blunt wake-up call for the federal government about the Atlantic Canadian economy this week, describing the region as a ‘microcosm’ of the broader productivity challenges facing the country.

He warned that the region's entrepreneurial instincts have atrophied, suggesting that a reliance on government support and a lack of private-sector economic spark have left the East Coast vulnerable. Despite a cultural mindset that prides itself on self-reliance, McKenna and Nova Scotia billionaire John Risley argue that true entrepreneurship is not effectively supported by the current regulatory and financial ecosystem, leaving visionaries to struggle in isolation.

Interprovincial trade barriers still pose a threat

This stagnation is driven in part by interprovincial trade barriers that act as a hidden tax on every regional transaction. Manufacturing output across Atlantic Canada has declined sharply as firms struggle to scale amid a mountain of conflicting provincial regulations. McKenna pointed out that while the entrepreneurial spirit remains high among the population, it is stifled by a system that makes it easier to trade with Europe than with a neighbouring province.

According to recent data from the International Monetary Fund (IMF), removing interprovincial trade barriers could increase productivity per worker by nearly 40 per cent in Prince Edward Island and by more than 23 per cent in both Nova Scotia and New Brunswick.