The Mastercard Economics Institute (MEI) has released its global outlook report for 2025 – highlighting what’s trending for consumers, what matters regionally, and what themes connect globally.
Key highlights for the Canadian economy include:
- Moderate Economic Growth: MEI forecasts Canada’s real GDP growth to increase modestly to 1.8% in 2025, up from 1.6% in 2024;
- Impact of Interest Rates: With the Bank of Canada (BOC) expected to continue cutting interest rates, reaching 2.75% by April 2025, the relief from high debt payments should help alleviate household financial stress, improve job growth, and stimulate consumer spending;
- Tax Relief and Business Investment: Recently announced tax-relief measures are expected to support consumption growth in early 2025;
- Population Growth Trends: Slower population growth may dampen overall economic activity, but it could also help reduce shelter inflation and support real wage growth, providing a boost to consumer purchasing power.
“In 2025, MEI expects the Canadian economy to grow at a moderate pace as the benefits of lower interest rates and easing inflation offset the effects of slower population growth,” said the report.
“Lower interest rates should alleviate household stress by reducing the burden of debt payments outpacing income growth. The economic trajectory differs across provinces, driven by housing conditions.”
“MEI expects that recently announced tax-relief measures will boost consumption growth in the first half of 2025. Lower rates are expected to promote job growth, stimulate consumer spending and revive activity in the housing market. Business investment is also likely to rise, supported by lower interest rates and the anticipated pickup in economic growth.
“However, MEI expects these tailwinds to be partially offset by elevated debt burdens, slower population growth and heightened policy uncertainty. Notably, Canada’s GDP per capita has declined, signaling underlying economic challenges.”
The report said the housing market remains a focal point due to the strain from elevated household debt.
“With debt payments outpacing income growth, consumers continue to feel the squeeze of past interest rate hikes. MEI’s analysis of SpendingPulse insights, which track in-store and online retail sales across all payment methods, reveals robust consumer spending growth per capita in Quebec and the Maritimes between the first half of 2022 and the first half of 2024, contrasting with softness in BC and Ontario,” said the report.
“This divergence stems from lower household debt-to-income ratios in Quebec and the Maritimes, while higher home prices in BC and Ontario have led to sharper increases in mortgage payments. Although lower rates should boost consumer spending overall, not all households will benefit equally. Consumers with five-year fixed rate mortgages renewing in 2025 will likely face higher debt payments, further limiting their spending power.
“Beyond monitoring potential shifts in trade policy with the U.S., Canada’s largest trading partner, MEI is focused on population growth trends. While a slowdown in population growth may weigh on aggregate economic growth, it could also reduce pressure on shelter inflation. This would support continued real wage growth, boosting consumer purchasing power.”
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