Following an overall sluggish 2024, the Canadian economy is poised for a stronger performance this year, as lower borrowing costs encourage consumer spending and business investment to pick up, according to new research from The Conference Board of Canada.
Canada’s GDP is forecast to increase by 1.5 per cent in 2025 before increasing a further 1.9 per cent in 2026.
“While declining interest rates have alleviated some pressure, uncertainty surrounding the trade environment and the impact of weaker population growth are weighing on growth prospects,” said Cory Renner, Associate Director, Economic Forecasting at The Conference Board of Canada.
“Weak population growth will have wide ranging impacts and re-exacerbate labour challenges, reducing the governments’ tax base.”
The Conference Board said housing affordability remains a pressing issue, but the federal government’s sharp reduction in immigration targets will provide some relief. Falling household formations, combined with efforts by provincial governments to support residential construction, are also expected to help ease supply pressures in the housing market over the coming years.
“In the United States, after a year of unexpectedly strong economic growth, the economy is projected to cool in 2025. Employment growth picked up in the final quarter of 2024, though the labour market is set to moderate. Export prospects are a bright spot, but policy unpredictability under the Trump administration poses significant downside risks. The U.S. economy is forecast to expand by 2.0 per cent in 2025,” said the Conference Board.
“A weaker Canadian dollar and strong demand from the U.S. should provide a positive environment for exporters, however, the threat of a 25 per cent in tariffs makes the outlook for trade highly uncertain.
“The sudden slowdown in population growth will have significant impacts on Canada’s labour market. A steep decline in labour force growth, combined with a strong demand for labour, will push Canada’s unemployment rate lower and cause labour shortages to re-emerge. Employment growth is projected to remain subdued in the near term.”
The Conference Board said declining interest rates will help stimulate investment in 2025. However, with rates still above neutral levels, the recovery in business investment is projected to be only partial. Investor caution is being amplified by Trump’s tariff threats. Despite these challenges, there are some areas of optimism, particularly within Canada’s growing electric vehicle sector.
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