TRENTON, Canada

Canadian households and businesses were on the upswing financially until US President Donald Trump enacted tariffs that pose a new threat to the country’s financial stability, Bank of Canada Governor Tiff Macklem said Thursday.

Macklem released the annual Financial Stability Report at a news conference in Ottawa, and the news was not good.

“The big message in this report is we now face a new threat,” he told reporters. Trump’s tariffs and resultant trade war could knock Canada off the financial rails.

“The trade war currently threatens the Canadian economy and poses risks to financial stability,” the report said. “Since January, the unpredictability of US trade policy has caused a sharp increase in uncertainty and market volatility.”

The gloomy economic outlook holds for most countries, not just Canada.

“The trade war and ensuing uncertainty have reshaped the global backdrop, lowering the prospects for global growth and raising inflation expectations,” the report said. “In Canada, uncertainty about the scope and duration of the trade war has weighed on consumer and business sentiment and decisions.”

Falling inflation rates had allowed for decreases in the financial lending rate and resulted in decreases in household debt and business insolvency in the past year, then Trump’s tariffs led to a fear of economic derailment.

Macklem said the economy at present remains stable, but it requires a close watch to allow for reaction to changes.

“We want to make sure that there is a level of vigilance, that there isn’t overconfidence that everything is going to work out, and that the financial system is prepared for turbulence.”

The Bank of Canada, also referred to as the central bank, exists to promote economic and financial welfare and also sets the base interest rate for financial institutions.