07:01 AM EST, 02/26/2025 (MT Newswires) -- Canadian provinces look to have begun 2025 on a strong note, but impending United States trade tariffs could cause significant slowdowns and alter the growth rankings among provinces, said Desjardins.

Non-energy sectors, particularly manufacturing, are expected to be the most affected, noted the bank. This would hinder economic activity in Ontario, Quebec, Manitoba and Prince Edward Island, in particular, resulting in lower growth compared with the national average.

In contrast, oil-exporting provinces such as Alberta and Saskatchewan might fare better due to anticipated tariff exemptions, pointed out Desjardins. Meanwhile, British Columbia and Nova Scotia, being less reliant on U.S. trade, should outperform other provinces.

While most provinces anticipate robust revenue growth and restrained spending to narrow budget balances in FY2025-26 (FY26), tariff uncertainty introduces significant risks to this plan, stated the bank. Provinces will update their plans in the upcoming 2025 budgets to reflect these risks, likely resulting in weaker bottom lines than anticipated.

The federal government and several provincial premiers have backed providing tariff relief if needed. Provincial governments have the fiscal capacity to subsidize industries and individuals affected by the tariffs within a spending envelope in the order of C$100 billion while keeping the net debt-to-GDP ratio below the pandemic level of 35%.

Provinces with higher exposure to U.S. trade, such as Ontario, Quebec and Manitoba, may need more substantial support, added Desjardins. However, provinces should maintain a manageable debt burden if they provide targeted relief in regions and sectors most affected by U.S. tariffs.