Justin Trudeau has announced his decision to step down as Canada’s prime minister, a move that concludes months of speculation and sends shockwaves through the country’s political and economic landscape. Trudeau’s departure will take effect once the Liberal Party selects a new leader, with Gov. Gen. Mary Simon agreeing to prorogue Parliament until March 24.
The resignation follows the abrupt departure of Chrystia Freeland, deputy prime minister and finance minister, who stepped down on December 16 just hours before presenting the fiscal update. This unexpected exit exacerbated political uncertainty, causing the Canadian dollar to plunge below 70 cents U.S.—a level not seen since the pandemic’s early days.
Economic Fallout: Rising Uncertainty
Economists warn that Trudeau’s resignation will usher in heightened economic uncertainty, as reflected in Bloomberg’s Canada Economic Policy Uncertainty Index, which surged to an unprecedented 650.
Tu Nguyen, an economist at RSM Canada, described the situation as a “new wave of uncertainty” that threatens to derail Canada’s expected economic rebound. With inflation easing and potential Bank of Canada interest rate cuts on the horizon, 2025 was anticipated to be a year of recovery. However, businesses and investors may now adopt a cautious “wait-and-see” approach, delaying hiring and investments.
Political Instability: A Power Vacuum
Stephen Brown of Capital Economics highlighted the emergence of a “power vacuum” at a critical time, particularly as the United States faces potential policy changes under a Donald Trump presidency. Trudeau’s departure could affect Canada’s ability to navigate these external pressures.
Brown also noted that a shift to a Conservative government, led by Pierre Poilievre, could result in smoother relations with a Trump-led U.S. administration. The Conservatives’ proposed policies, including reducing regulations and addressing Canada’s lagging productivity, may appeal to business leaders.
Federal Policy Shift: A Likely Spring Election
According to Tony Stillo of Oxford Economics, Trudeau’s resignation accelerates a likely “sea change” in federal policy, with the prospect of a spring election looming. Opposition parties, including the New Democratic Party and the Bloc Québécois, are expected to leverage the upcoming federal budget to push their agendas before calling for an election when prorogation ends.
Recent polls suggest that a Conservative majority government could emerge, paving the way for significant policy changes. These may include reducing government spending, cutting taxes, eliminating the carbon tax, and revisiting immigration policies.
What Lies Ahead
Trudeau’s resignation marks the end of an era in Canadian politics but opens the door to substantial uncertainty. The coming months will reveal whether the Liberal Party can regain its footing or if the Conservatives will capitalize on this power vacuum to implement sweeping policy changes.
As the political landscape shifts, Canada’s economic recovery could face delays, with investors and businesses bracing for the impact of leadership changes and potential elections.
