Canadian entrepreneurs will be asked to navigate a landscape marked by both opportunities and challenges in 2025. While the economic outlook suggests higher growth than in 2024, the continued effect of inflation, the uncertainty of a changing administration in the U.S. and a declining population will represent challenges for business owners, according to a report by the BDC.
“Entrepreneurs will need to be agile and innovative to respond to these evolving dynamics. A focus on good cash flow management, efficiency, and a willingness to adapt to new trends will ensure that your business will not only survive but thrive in the coming year,” said the BDC, the Business Development Bank of Canada.
Lower inflation should give entrepreneurs some respite
The Canadian economy is expected to grow by around 1.5% for the year, said the BDC.
“Rising costs and inflation have been the main challenges for entrepreneurs over the past two years and the situation should improve in 2025. Inflation is expected to stay within the Bank of Canada target range of about 2%. This should encourage the central bank to continue cutting its interest rate toward the neutral point of 2.75% by mid-2025,” it said.
“Interest rates will be a deciding factor in the year ahead, and we expect them to bring momentum back to the economy. Growth will largely be driven by consumer spending and a rebound in residential investment. Essentially, we can expect a recovery in the spending categories most impacted by interest rate hikes that started in 2022.
“However, the effects of inflation will continue to challenge Canadian entrepreneurs. Even as rates are lowered and inflation comes under control, a higher debt burden will continue to weigh down households. Meanwhile, the higher prices suppliers have been forced to charge because of rising inflation will not go down as inflation slows. Prices will just increase at a slower, more sustainable pace.
“Overall, the economy will continue its safe landing following a peak in activity in 2022.”
Tariff threats will create uncertainty for Canada-U.S. trade
The report said President-elect Donald Trump has threatened to impose a 25% tariff on all products entering the United States from Canada and Mexico when he is inaugurated on January 20. Meanwhile, Canada is already examining possible retaliatory tariffs on certain U.S. items should these threats materialize.
“The potential tariffs could significantly impact several sectors, including automotive, construction and manufacturing, and they could lead to higher prices for American and Canadian consumers. Tariffs could also fuel inflation and disrupt the highly integrated supply chains that currently exist between the three countries,” explained the BDC.
“It’s not just businesses that trade directly with the United States that could be impacted. Your business could be impacted if you sell to a company that exports to the United States, for example. Proposed tariffs could also impact the import of goods from China or Mexico transiting through the United States. High tariffs could even lead to a recession if Canada were to retaliate with the same intensity (25% tariffs). Such a situation would impact all types of companies, even those that have nothing to do with trade.
“While it’s unclear whether these tariffs are meant to be enacted or simply a negotiation tactic, the responsible thing to do is to start planning for what they could mean for your business. This involves understanding their direct and indirect impacts on your operations and supply chain.”
Lower population growth could make it harder to find employees
Canada’s 2025-2027 Immigration Levels Plan projects a 0.2% population decline in 2025 and 2026 before returning to 0.8% growth in 2027. Meanwhile, the population aged 65 and over will grow by almost 3% per year, noted the report.
“The working-age population, aged 15-64, could fall by more than 450,000 between the end of 2024 and the end of 2026. By comparison, international immigration and net non-permanent residents from this age group grew by over 1 million in 2024 (that’s roughly the entire population of Nova Scotia),” it said.
“Canada’s population growth reached 3.1% in 2023 and has been one of the main drivers of GDP growth for the past few years. A declining population will keep a lid on growth, especially given the Canadian population’s age composition. An ageing population will also lead to changing consumption patterns.
“However, the biggest impact for entrepreneurs will likely be a reduced pool of potential workers. A decline in the working-age population could lead to labour shortages that are likely to hit certain regions or sectors harder than others.”
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