Canada
The Canadian economy has long been anchored to its larger neighbor to the south. However, key policy differences have set Canada on a slower economic trajectory.
Households stretched to afford any property they could. The post-pandemic inflation surge raised the cost of financing. As mortgages reset, many household budgets experienced stress, which impaired consumption.
Like the U.S., the nation is reckoning with a wave of immigration. A permissive border policy allowed a large, sustained influx of new arrivals from all over the world. In the long run, this bodes well for Canada's potential; but in the short run, newcomers drive up house prices and add to competition for jobs. Policies for new entrants have been tightened, in search of equilibrium.
Canada’s labor market is in moderate decline, with the unemployment rate on the rise while participation is falling. Weaker consumer spending has allowed the nation’s inflation rate to fall below 2%. We think it will remain suppressed.
Canada’s fortunes will be heavily influenced by U.S. economic policy.
The Bank of Canada was quick to recognize and react to the slowing economy. It led the rate-cutting cycle among central banks and has shifted to cutting by larger increments. We expect the fast pace of easing to conclude at a terminal rate of 2.5% in the year ahead. With this support, we anticipate modest, below-potential growth in 2025.
Political complications are accumulating for Canada. The nation will go to the polls next year, likely to follow the global trend of change elections. Climate transition funding may come under close scrutiny. The Trump campaign pledged greater U.S. oil production to contain energy prices, a poor omen for this important portion of Canada’s economy. Trump's protectionist stance could also lead to changes in the U.S.-Mexico-Canada free trade agreement.
Click on the chart to zoom in and explore the data.
