Canada Key Themes 2025: Policy shocks buffet slow-growing economy

We think slow economic growth will likely continue in Canada in 2025 as significant policy shocks threaten to reshape the landscape. Yet, GDP per capita should improve after declining since mid-2022.

While it is not our current baseline, if Trump follows through on his recent threat to impose 25% US tariffs on all Canadian imports on ‘Day 1’ of his presidency, the Canadian economy would fall into recession in 2025.

In this report, we address four key questions shaping the economic outlook for Canada in 2025:

• How much will easier financial conditions and a resilient global backdrop support growth? Canada’s economy will increasingly benefit from lower interest rates, looser mortgage lending rules and improving global demand in 2025.
• Will prevailing imbalances continue to weigh on the Canadian economy? Prospects for the Canadian economy will continue to be weighed down by lingering imbalances and vulnerabilities. Topping the list are elevated household debt burdens, underinvestment in private sector non-residential capital and persistently weak productivity. The question is, to what degree?
• To what extent will a shrinking population from Canada’s new immigration policy slow growth? The government’s plan to cut immigration and reduce the number of temporary residents will cause Canada’s population to decrease slightly in 2025. This unprecedented immigration policy U-turn will significantly dampen economic growth in 2025, and work to offset the boost to demand from improving households finances and foreign demand.
• How might uncertain policy shocks in Canada and the US reshape economic prospects? A likely Conservative win in the upcoming election would usher in a sea change to Canada’s economic and fiscal agenda while another Trump presidency will bring renewed US policy uncertainty and more threats of tariffs in 2025.

Download the full report to uncover our comprehensive analysis.