Canada’s economy has slipped into what Deloitte calls being “on pause,” with the mandatory July 1 review of the Canada-United States-Mexico Agreement having passed without a clear resolution, leaving businesses across the country’s most trade-exposed sectors unable to plan with any confidence, according to Global News’ reporting on the Deloitte assessment.

A Technical Recession, Officially Disputed

The economic backdrop into which the CUSMA review has landed is already fragile. Canada’s GDP data show a technical recession spanning October 2025 through March 2026, with business investment falling for five consecutive months, per Deloitte’s report as covered by Global News. Several Bank of Canada officials, along with Prime Minister Mark Carney, have pushed back on the recession framing, with Deloitte itself describing the claims as “exaggerated” even while acknowledging that the headline numbers, a one percent GDP drop in the fourth quarter of 2025 followed by a first-quarter 2026 decline, technically meet the standard definition.

Deloitte’s report identifies the core problem plainly: “unresolved trade issues with the U.S. remains the leading risk to the outlook,” warning that a failure to extend CUSMA or further American tariff escalation would hit Canadian exports and confidence hard. The firm now expects 2026 GDP growth of just 0.7%, down from 1.7% in 2025.

What CUSMA’s Review Actually Means

The stakes of the review are structural, not just cyclical. Under its current terms, CUSMA could be renewed for another 16 years under existing terms, extended for 10 years with annual reviews, or replaced entirely, according to Global News’ reporting. Canada and Mexico have both pushed for the longer, more stable extension, while President Trump has said he would be willing to sign the agreement but would “prefer to see it terminated,” a comment that has done little to settle business planning.

The Bank of Canada has held its policy rate steady at 2.25% through the middle of 2026, citing both the trade uncertainty and a separate inflationary pressure from the Iran war’s effect on oil prices, according to the central bank’s own rate announcement. The Bank’s April forecast projects GDP growth of just 1.2% in 2026, rising gradually to 1.6% in 2027 and 1.7% in 2028, contingent on exports and business investment resuming along what the Bank describes as “a lower trajectory” than pre-tariff projections assumed.

The Regional Damage Is Uneven

Not every part of Canada is being hit equally. RBC Economics research shows that manufacturers of steel, aluminum, copper, motor vehicles and parts, and softwood lumber have borne the brunt of US trade actions, concentrating the economic pain in Ontario and Quebec, which face the highest effective tariff rates on exports to the US, both exceeding 6%, according to RBC’s year-one tariff assessment. By contrast, provinces with smaller exposure to those industries, including Newfoundland and Labrador, New Brunswick, Alberta, Saskatchewan, and Prince Edward Island, face effective tariff rates below 1%.

There is evidence of adaptation underway. Canada’s merchandise exports to non-US economies rose 17% year-over-year in the twelve months to January 2026, even as exports to the US fell 10% over the same period, RBC’s data shows. The federal government has set a goal of doubling non-US exports by 2035, backed by infrastructure spending and new trade-diversification programs, though RBC notes that shifting supply chains and building new trade relationships outside the US “is a lengthy process” that cannot offset near-term losses.

Where the Upside Case Comes From

Not every recent analysis is downbeat. A separate RBC assessment argues that Canada’s resource base, agriculture, energy, and critical minerals, is increasingly well positioned to meet growing global demand for AI infrastructure and defense spending, representing what the bank’s economists call “a moment for Canada to invest in itself,” according to RBC’s separate outlook note. That report points to five specific positives: most Canadian exports remain exempted from the broadest US tariff increases, monetary policy retains flexibility, government net debt levels remain relatively low compared with other advanced economies, and both federal and provincial governments have signaled willingness to provide additional fiscal support if needed.

TD Economics strikes a similarly cautious-but-not-dire tone, forecasting real GDP growth accelerating from 2025’s “anemic” 0.7% pace to 1.3% in 2026 and 1.8% in 2027, contingent on the CUSMA talks not deteriorating further, according to TD’s quarterly forecast. TD’s baseline assumes the tariff status quo holds, a 10% rate on non-CUSMA-compliant goods alongside sector-specific Section 232 tariffs, while flagging that new Section 301 tariffs on forced-labor violations, set to take effect in late July and covering 60 countries, add a fresh layer of complexity just as the CUSMA question remains unresolved.

The Structural Shift Ahead

Bank of Canada officials have framed the moment as something bigger than a cyclical downturn. In a recent address, the central bank described the economy as being “at a crossroads,” warning that if Canada fails to restructure around new trade relationships, “productivity and GDP growth do not recover,” and the country becomes a less attractive place to invest, according to the Bank of Canada’s own address. Roughly half of the GDP shortfall attributable to US tariffs comes from reduced potential output rather than simple cyclical weakness, the Bank’s own projections show, a distinction that matters because potential-output damage does not automatically reverse once trade tensions ease.

Singapore‘s economy expanded 6.0% year-on-year in the first quarter of 2026, a headline figure strong enough to suggest the city-state has largely shrugged off the disruption radiating from the US-Israel-Iran conflict. Yet the government’s own forward-looking signals tell a more cautious story: Singapore has held its full-year GDP growth forecast at a comparatively modest 2.0% to 4.0% range even after posting a 6.0% first-quarter print, according to Singapore’s Department of Statistics, while explicitly flagging that downside risks “have risen significantly” as a direct consequence of the conflict.

That gap — a strong quarterly print paired with an unchanged, cautious full-year range — is the clearest signal available that Singapore’s policymakers view the current quarter’s strength as front-loaded rather than representative of the trajectory ahead. As a small, trade-dependent economy long treated by investors as a bellwether for regional and global conditions, Singapore’s own hedging matters well beyond its borders.

Tourism Board Downgrades Spending Even as Arrivals Rise

The clearest evidence of Singapore’s cautious internal read comes from its tourism sector, historically one of the most immediate transmission channels for regional business and consumer sentiment. The Singapore Tourism Board has projected 2026 tourism receipts of between S$31 billion and S$32.5 billion — a decline from the record S$32.8 billion recorded in 2025 — even while forecasting that international visitor arrivals will rise to between 17 million and 18 million, up from 16.9 million the previous year, according to CNBC’s reporting.

That divergence — more visitors, less spending per visitor — is a meaningful signal in its own right. Amanda Ow, a senior Singapore Tourism Board official, has described current conditions as highly uncertain and volatile, and has said the board is deliberately taking a more conservative view of how the year will unfold. Melissa Neufang, an industry analyst quoted in the same CNBC report, noted that uncertainty is not a natural ally of the travel industry, even as she highlighted that meetings and conference travel has remained among the more resilient segments within the broader tourism slowdown.

Singapore’s exposure runs directly through its role as a regional aviation and business-travel hub. Tourism accounted for 6% of Singapore’s total services exports in 2024, and Changi Airport handled a record 70 million passengers in 2025 — scale that makes even a modest per-visitor spending decline a meaningful drag on services-sector revenue, independent of headline visitor arrival numbers.

Why the Headline GDP Number Overstates Underlying Momentum

Singapore’s role as a global trade and logistics hub means its GDP figures are unusually sensitive to front-loading effects — companies and traders accelerating shipments and transactions ahead of anticipated disruption, which can inflate a single quarter’s growth figure without reflecting a durable improvement in underlying demand. The Iran conflict‘s disruption of the Strait of Hormuz, and the resulting spike in global energy and shipping costs, creates precisely this kind of incentive: businesses moving inventory and completing trade flows earlier than they otherwise would, anticipating that conditions will deteriorate rather than improve through the remainder of the year.

This dynamic helps explain why Singapore’s government has resisted revising its full-year forecast upward despite the strong quarterly print. The Ministry of Trade and Industry’s decision to maintain the 2.0% to 4.0% range — rather than narrowing it toward the top end given the 6.0% first-quarter result — signals an institutional expectation that growth will decelerate meaningfully through the remainder of the year as front-loading effects fade and the underlying cost pressure from sustained higher energy prices works through the broader economy.

Singapore’s Calendar Resilience as a Partial Offset

Despite the softer spending outlook, Singapore has continued attracting marquee international events that provide some cushion against broader tourism softness. Amanda Ow noted that Singapore’s events calendar has remained notably resilient despite flight disruptions linked to Middle East tensions, pointing to South Korean boyband BTS‘s planned four-night Singapore stop in December as a concrete example of continued demand for major entertainment bookings, alongside a newly announced three-year content partnership with South Korean drama production company Mr. Romance.

Singapore is also proceeding with infrastructure investment aimed at supporting longer-term tourism capacity regardless of near-term volatility, including a new cruise and ferry terminal opening July 15, featuring a VIP lounge and automated baggage handling designed to support a cruise sector that recorded 375 ship calls and more than 2 million passengers in 2025. These investments reflect a strategic calculation that current volatility, however material to 2026’s specific numbers, should not derail Singapore’s longer-term Tourism 2040 target of reaching S$47 billion to S$50 billion in annual tourism receipts.

What Singapore’s Caution Signals for the Wider Region

Singapore’s dual signal — strong headline growth alongside a deliberately unrevised, cautious full-year outlook — offers a useful template for how policymakers across trade-dependent Asian economies are currently navigating the Middle East disruption. Rather than reacting to a single strong data point by revising growth expectations upward, Singapore’s institutions appear to be treating the first quarter’s strength as likely temporary, driven by trade front-loading and residual momentum from before the conflict’s most disruptive phase, rather than as evidence the economy has durably absorbed the shock.

Given Singapore’s long-standing role as a bellwether for regional economic conditions — a role explicitly referenced in the government’s own tourism messaging — this cautious internal posture is arguably a more informative signal for investors and policymakers tracking the broader Asian growth outlook than the headline 6.0% growth figure itself. If Singapore’s own forecasters, with access to real-time trade, shipping, and financial flow data unavailable to most external analysts, are unwilling to revise their outlook upward despite genuinely strong first-quarter data, that reluctance is itself a meaningful data point about how the region’s most trade-exposed economy expects the remainder of 2026 to unfold.

Malaysia‘s economy grew 5.4% year-on-year in the first quarter of 2026, a figure that on the surface suggests resilience against the global disruption triggered by the Iran conflict and the closure of the Strait of Hormuz — but economists tracking the underlying monthly data warn the headline number is masking a momentum loss that is set to compound through the second half of the year, as the true cost of an extended energy shock filters through supply chains still adjusting to a new price regime.

Bank Negara Malaysia (BNM) Governor Datuk Seri Abdul Rasheed Ghaffour has characterized the conflict’s impact on Malaysia as contained so far, citing the economy’s strong fundamentals and favorable starting conditions heading into the crisis, according to reporting from The Edge Malaysia. But that assessment increasingly reads as a description of where Malaysia started the crisis rather than where it is heading, given how sharply monthly growth data has decelerated even within the first quarter alone.

The Monthly Data Tells a More Urgent Story

Beneath the quarterly headline, BNM’s own monthly real GDP figures reveal a clear and accelerating slowdown: growth fell from 7.1% in December to 6.8% in January, 5.2% in February, and just 4.1% by March — a deceleration of roughly three full percentage points in a single quarter, even as the quarter benefited from two major festive spending periods, Chinese New Year in February and Hari Raya Aidilfitri in March, that typically provide a reliable seasonal boost to consumption and retail activity.

UOB Malaysia senior economist Julia Goh has flagged this trajectory as the more meaningful signal, noting that downside risks are increasing as the conflict extends into its twelfth week with the Strait of Hormuz remaining effectively closed. Private consumption growth slowed to 4.7% in the first quarter from 5.6% in the preceding quarter, while private investment eased to 7.8% from 9.2% — both leading indicators for how households and businesses are recalibrating spending in response to a sustained, rather than transient, energy price shock.

The Price Shock’s Direct Transmission Channel

The mechanism driving Malaysia’s slowdown is straightforward and well-documented: Brent crude prices rose to an average of $102 per barrel within 30 days of the conflict’s escalation, according to BNM estimates cited by The Edge Malaysia, while shortages of intermediate industrial inputs and petrochemical feedstocks have simultaneously pushed up production and logistics costs across manufacturing supply chains that were not designed to absorb a sudden, sustained energy price increase.

RAM Rating Services head of economic research Woon Khai Jhek has been explicit that Malaysia’s resilient first-quarter starting position should not be mistaken for durable insulation. Woon has cautioned that if supply conditions deteriorate further and the disruption proves prolonged — an increasingly plausible scenario given the conflict’s duration — the drag on growth will grow progressively larger through the second half of 2026, and warned against drawing excessive comfort from a single quarter of resilient data.

Crucially, both BNM and independent economists agree the inflationary pressure Malaysia is now experiencing is primarily supply-side cost-push inflation, driven by higher energy prices and logistics disruption rather than excess domestic demand. That distinction matters enormously for policy: Woon has noted that conventional monetary policy tools, such as adjustments to the Overnight Policy Rate (OPR), have limited effectiveness against supply-side shocks of this nature, meaning BNM has fewer traditional levers available to cushion the slowdown even if it wanted to intervene more aggressively.

Sectoral Divergence Reveals Where the Strain Is Concentrated

Malaysia’s growth composition data reveals meaningfully uneven pressure across sectors. Mining and quarrying output contracted 2.1% in the first quarter, reversing a 1.4% gain in the prior quarter, driven primarily by lower crude oil and natural gas production. Agriculture growth softened to 2.6% from 5.7%, while construction eased to 7.7% from 10.9% — sectors directly exposed to input costs and, in agriculture’s case, energy-intensive logistics.

Services growth, which has historically anchored Malaysia’s overall economic performance, also moderated — slowing to 5.6% from 6.2% in the prior quarter, according to Department of Statistics Malaysia data reported by Trading Economics. On a quarter-on-quarter seasonally adjusted basis, the economy was effectively flat — the weakest sequential performance since the fourth quarter of 2022 — a signal that momentum has stalled even as the year-on-year comparison still shows respectable growth relative to a weaker base period.

One relative bright spot has offered Malaysia a partial offset: continued strength in electrical and electronics (E&E) exports, buoyed by sustained global demand for AI-related semiconductor products. RAM’s Woon has credited this AI-driven semiconductor export momentum, alongside resilient domestic demand and government support measures, with providing Malaysia’s economy a stronger cushion than it would otherwise have against the energy shock — though he has cautioned this cushion is not infinite if the underlying conflict extends well beyond current expectations.

The IMF’s More Cautious External Read

External assessments of Malaysia’s trajectory have been notably more conservative than the domestic narrative of contained impact. The IMF‘s most recent Article IV consultation projected Malaysian growth slowing to 4.6% in 2026, citing both higher US tariffs and a moderately contractionary fiscal policy stance as compounding headwinds beyond the direct energy shock, according to the IMF’s 2025 Article IV Consultation Press Release. The Fund’s modeling, run through its Global Integrated Monetary and Fiscal framework, characterized potential adverse global shocks — including further tariff escalation and supply chain disruption — as capable of inflicting a 0.6 standard deviation shock to Malaysian growth relative to historical patterns, a materially larger downside than BNM’s public messaging has emphasized.

BNM has held its Overnight Policy Rate steady at 2.75% since a 25-basis-point cut in July 2025, according to Bloomberg’s economist survey data, with all 22 economists polled ahead of the central bank’s most recent policy meeting expecting no change — a signal that Malaysian monetary authorities remain reluctant to ease further given the supply-side, rather than demand-side, nature of current inflationary pressure.

Where Malaysia’s Second Half Now Depends

The trajectory of Malaysia’s economy through the remainder of 2026 now hinges almost entirely on a variable outside domestic policymakers’ control: the duration of the Strait of Hormuz disruption. RAM’s Woon has suggested a temporary pickup in activity is possible around June or July before some normalization later in the year — but that scenario assumes the underlying conflict does not escalate further or extend materially beyond its current twelfth-week mark. Given how sharply Malaysia’s monthly growth data decelerated even within a single quarter that benefited from favorable seasonal spending patterns, the margin for error in that assumption appears considerably thinner than the resilient quarterly headline figure suggests.