This weekend's Liberal party leadership race in Canada ended with an overwhelming win for frontrunner Mark Carney, with a decisive 86% of the vote, noted Bank of Montreal (BMO).

Carney will take the role of prime minister from Justin Trudeau in the coming days and is expected to call a parliamentary election soon after, said the bank. Parliament is scheduled to resume on March 24, but Carney could call an election before then. It could all very well hinge on the United States tariff environment.

The U.S. is set to implement 25% tariffs on steel and aluminum on Wednesday. While that levy would apply to all countries, Canada is the top exporter of both metals to the U.S. Plus, as last week showed, the trade environment can change very quickly even if you have dates and deadlines all in place.

BMO lowered its forecast for Canadian GDP last week. After some decent momentum at the turn of the year, the economy could face a modest recession in the quarters ahead. The bank's initial read is for growth to average 0.5% this year and next -- and that's assuming the broad tariffs (10% on energy, 25% on everything else) are lifted after a year.

BMO is also penciling in another 50bps in easing from the Bank of Canada, starting this Wednesday. That would put the terminal rate at 2.00% by July versus 2.50% previously. The one-month delay didn't change the bank's initial post-tariff analysis.

The key message is that regardless of what actually happens on the tariff front, it's clear that the heavy weight of uncertainty is here to stay for a while, pointed out BMO.

China also announced retaliation on Canada -- following its electric vehicle and steel and aluminum tariffs imposed last year. Starting March 20, China will tariff Canadian rapeseed oil, rapeseed meal, and pea products at 100% and pork and some seafood at 25%.

The bank recapped just some of the ups and downs from last week's tariff roller coaster:

-- Canada was hit with 25% tariffs on all goods except energy, which got 10%, last Tuesday, along with 25% on Mexico and another 10% on China. On cue, Canada rolled out its countermeasures -- the highlight was the 25% tariffs on C$155 billion on U.S. imports into Canada, with C$30 billion in effect immediately.

-- The contours of Canada's response have changed. For example, the federal government has since announced a few tweaks to the EI program as well as C$5 billion to Export Development Canada. The provinces also rolled out their suite of measures, including some of last month's top hits, such as removing U.S. alcohol from liquor stores and banning or limiting U.S. companies from provincial procurement.

Some mentioned energy exports -- Ontario announced a 25% export tax on electricity to the U.S., while Quebec is considering stopping some electricity exports, and Manitoba and British Columbua are considering export taxes of their own.

-- Canada and Mexico received one-month exemptions for autos last Wednesday, and then on almost all goods on Thursday that are USMCA-compliant. After some discussion -- inside and outside the Canadian government -- it seems that just under half of Canadian exports to the U.S. are technically compliant under the USMCA, but the vast majority of those that aren't can be fairly easily.

-- Canada is still sticking to its previously announced countermeasures, though it has delayed the second round of tariffs -- the bulk of that C$155 billion total -- given the one-month exemption. The broad message is that countermeasures will remain in place as long as tariffs are.

-- President Donald Trump and Prime Minister Trudeau started speaking again after last Tuesday's tariffs were put in place. The discussions may have led to the above progress, but continue to be quite heated based on leaks and public remarks. It remains to be seen how the next prime minister will change the dynamic of negotiations.

-- Other than this Wednesday's steel and aluminum deadline, BMO will be looking ahead to April 1-2, which is when those exemptions expire and when Trump is expected to announce plans for reciprocal tariffs. But it's clear that things can change drastically anytime.

In a week of policy volatility, markets were understandably also volatile. The TSX actually outperformed with a 2.5% decline versus a 3.1% drop in the S&P 500, pointed out BMO. After weakening through most of the week, the Canadian dollar (CAD or loonie) is a touch stronger early Monday and trading just below $1.438.

Looking ahead, it's safe to say U.S tariffs will continue to dominate in Canada, added the bank. That's especially the case with little on the docket in the first half of the week until the BoC's announcement on Wednesday.

BMO now expects the BoC to cut by 25bps at this meeting and the following three. Given all of the very significant risks over the near term, the bank will be watching Governor Tiff Macklem's press conference very closely, but it suspects he will have very little in the form of specific guidance.

And, as a reminder, the BoC's decision is on the same day the U.S. steel and aluminum tariffs could come into effect.

Data-wise, investors have the National Balance Sheet Accounts for Q4 on Thursday. Despite past rate cuts, mortgage demand growth has remained soft, which should keep a lid on total debt levels. Along with steady income growth, BMO is expecting another decline in the household debt-to-income ratios.

investors will also get January building permits on Thursday and wholesale trade, manufacturing sales, and new motor vehicle sales all on Friday, according to the bank