We’d almost be looking forward to putting 2024 behind us—if the coming year weren’t even more uncertain.
Our economics team looks at the best- and worst-case scenarios for 2025, from AI to immigration to trade. Plus, we talk to seven CEOs and economists for their thoughts on what’s ahead.
Stock markets
↑ Upside: Investors were betting Donald Trump would win. Now that he has, 2025 could show those bets pay off. If Trump moves as quickly as he’s promised to slash America’s corporate tax rate, equities are likely to rally as corporations eye fatter bottom lines. Even if Canadian companies don’t directly benefit—beyond those with operations south of the border—the TSX may get pulled along for the ride. And if Ottawa changes hands next year, a Conservative government might be more willing to respond to U.S. corporate tax cuts with cuts of its own. As it is, Canadian stocks look historically cheap.
↓ Downside: Like that stopped clock on the wall, longstanding predictions about an imminent U.S. recession may finally prove right as cracks in the American economy mount. Even if that doesn’t happen, forecasters already see a grim outlook for stocks. In late October, Goldman Sachs warned the era of double-digit stock market growth is over—in the next decade, the bank predicts annualized returns of just 3%, compared to 13% for the past decade.
Canadian politics
↑ Upside: If the polls hold, Canada will have a new government next year. Whether that’s an upside or a downside depends on your politics. The Conservatives promise lower taxes and less regulation. The Liberal economic vision revolves around clean energy, industrial tax credits and growing the workforce. Whoever forms the government will need to get a handle on deficits, which ballooned through the pandemic and its aftermath. But the fiscal picture is rosier than in other countries. The IMF sees Canada’s general government deficit equalling 1% of GDP in 2025, compared to 7.3% in the U.S. and an average across the G20 of 5.3%.
↓ Downside: Election years tend to be big on spending. That could strain Ottawa’s fiscal guardrails and open the door to further tax hikes. The fiscal outlook is already clouded by a slowdown in population growth (which suggests less tax revenue) and new spending commitments for the military, housing and pharmacare. The government’s promise to keep deficits below 1% of GDP and the ratio on a downward path may require new sources of revenue. The levy on bank profits in 2022 and the capital gains tax changes in 2024 show the Liberal government is prepared to ding Bay Street and high-income individuals to fund its spending.
We have very different circumstances than the U.S. in that our consumers have been much more directly impacted by higher rates. The U.S. consumer is strong, credit default is low, and that’s because they haven’t repriced their mortgages. They have a 30-year fixed-rate mortgage, which causes enormous challenges to the financial system, and occasionally banks fail because of it, but it protects the consumer through a downturn. The outlook is less clear in Canada. While we have good employment numbers, job security is not as strong, and inflation is cooling more quickly. So we’re looking to see a more rapid decline in rates and a little more stimulation of the economy. We need to soft-land this thing. That requires getting the consumer back into more stimulative modes. When you have as much leverage at the government, corporate and consumer levels as we have, it will be a significant unlock in economic growth when rates come down.
— Dave McKay, CEO of RBC
Housing
↑ Upside: How you view the housing market depends on whether you’re an owner or a buyer—what’s good for one isn’t necessarily good for the other. That said, there are forces in place to shake Canada’s housing market out of its doldrums after a year and a half of sideways prices. Interest rates are falling. Some Big Bank economists believe the Bank of Canada will cut its key rate to 2% by the end of 2025. Canadians also have a lot of savings sitting on the sidelines that pent-up demand could unleash.
↓ Downside: After years of Canadians borrowing and overextending themselves, reality has caught up. Though interest rates are falling, it might not be enough to save some people as mortgages continue to reset at higher rates. Two other anchors could weigh down house prices. First, the job market is weakening, and rising unemployment would take potential buyers out of the market. Second, Canada’s population growth boom is over and will turn slightly negative next year. Hardly conditions for a healthy housing market.
Canada’s investment thesis will improve through more growth-aligned public policy. This, coupled with growing global demand for a secure supply of critical minerals and ethically sourced energy, will support stronger Canadian competitiveness. There is huge potential for Canadian nuclear innovation, capabilities and resources to support decarbonization, delivering emission-free energy to the coming tidal wave of electrification. The North American advantage through all this is clear. With Canadian and American interests so interconnected, USMCA renewal will surely bring plenty of heat and light, but I’m ultimately optimistic its fundamental value will prevail. We must defend this partnership that powers our collective competitiveness.
— Darryl White, CEO of BMO
Energy
↑ Upside: At some point next year, the world will mark a milestone when renewable power overtakes coal for electricity generation, with solar leading much of the shift and nuclear continuing its comeback. The latter could play an even bigger role if more technology companies join Microsoft, Google and Amazon in announcing deals to power data centres amid concerns about surging energy consumption in the artificial intelligence sector.
↓ Downside: Many on Wall Street are betting oil prices will be depressed in 2025 as China’s economy slows. That might be good for consumers at the gas pump but not for Canada’s oil sector, a big driver of employment and productivity. On the other hand, war in the Middle East has the potential to spiral out of control, creating an oil-price shock that drives up inflation.
Supply chains
↑ Upside: Normalcy returns to how the world moves stuff around—or at least relative normalcy. It took a long time for companies to work out the kinks wrought by the pandemic, and geopolitics haven’t helped. But measures like the Federal Reserve Bank of New York’s global supply chain pressure index are finally back to their long-term average, which bodes well. It’s one big reason inflation has cooled so much.
↓ Downside: Climate disasters. Open conflicts around the world. Trade wars. Choose your poison for which one will snag the global flow of goods in the year ahead—because they all have in recent years. Freight costs may have come down a lot from their highs during the pandemic, but they remain higher than historical levels. Why does that matter? Because supply chain disruptions often translate into higher prices for goods. One thing to watch: The deal that cut short a strike by U.S. dockworkers in early October still needs to be fully hashed out by Jan. 15, 2025, or the dispute could flare up again.
With the rise of Indigenous equity ownership, increased land transfer and economic justice outcomes, the Indigenous economy has surpassed the $100-billion mark, signalling a new era of strength and innovation for Indigenous Nations. This achievement reflects growth across key sectors like tech, energy, sustainable resources and finance, with Indigenous-led businesses increasingly participating within national and global markets. Supported by frameworks like UNDRIP and the principles of Indigenomics economic inclusion, Indigenous Nations are now pivotal economic players in the economy, driving investment and sustainable development, forging a path toward long-term economic sovereignty, increased environmental stewardship and inclusive growth across Canada.
— Carol Anne Hilton, Founder and CEO of the Indigenomics Institute
Interest rates and inflation
↑ Upside: The annual rate of inflation stabilizes around the Bank of Canada’s 2% target, and economic growth picks up. This soft landing would allow the central bank to lower interest rates through the first half of 2025, offering relief to homeowners renewing their mortgages, and businesses and governments rolling their debt. The bank estimates the “neutral” level for its policy rate is between 2.25 % and 3.25%. With price stability restored, the benchmark rate would settle into this range, leaving borrowing costs higher than before the pandemic, but at a much more comfortable level than over the past two years.
↓ Downside: Few expect inflation to rebound to heights seen in 2022 and 2023, but price growth could prove sticky, adding to affordability problems and slowing the pace of interest rate cuts. Inflation risks in Canada come from two quarters: Home prices could surge in response to falling interest rates and looser mortgage rules; and wages could keep rising quickly, adding to business costs and encouraging companies to raise prices. Upside inflation risks are more pronounced in the U.S., where economic growth remains robust. That could keep the Fed from cutting as much as the BoC, further weakening the Canadian dollar relative to the U.S. currency.
Immigration
↑ Upside: Canada finally gets a handle on runaway population growth. The federal government has a plan: Reduce the share of temporary residents—people on study or work permits, their family members and asylum claimants—to 5% of the total population by 2026. (The most recent figure: 7.3%.) If the plan starts to work, it will take some heat out of the wildly unaffordable rental housing market. Canada needs strong immigration, but it should be focused on recruiting the world’s best and brightest, with a healthy dose of humanitarian efforts.
↓ Downside: Population growth slows, but not by much. It’s tough to envision this scenario, because the federal government has brought in loads of policies to restrict access to work and study visas. One potential challenge is that many people don’t leave the country when their permits expire, leading to a burgeoning underground economy of undocumented workers.
With a combined population of more than 500 million, free trade has provided Canada, the U.S. and Mexico with significant economic opportunities. The three countries together account for some 30% of global GDP, and over the past five years, trade flows in the region increased at an average annual pace of more than 5%. As the USMCA comes up for review in 2026, creating conditions that encourage greater business investment in North America—the key factor in improving productivity—must be our focus. With recent interest rate movements, impact on the economic outlook, and the path of new government policies in Mexico and the U.S., it will be imperative that we continue to advocate to ensure our three decades of deep economic connectivity is sustained.
— Scott Thomson, CEO of Scotiabank
Consumer spending
↑ Upside: Consumers start opening their wallets again. Inflation is back to normal and interest rates are on the decline, which is creating space in household budgets and stoking optimism among weary consumers. It’s been a rough time for consumption: The average person is spending less than they were a couple of years ago. And the shift has been especially brutal for retailers of bulky goods—think bikes, camping equipment and furniture—that people loaded up on early in the pandemic. These stores are due for a comeback.
↓ Downside: Consumers keep their wallets (mostly) closed. Many homeowners are facing mortgage renewals in 2025 and 2026. And even though borrowing rates are heading lower, many debtors will still see their payments jump by hundreds of dollars per month. Concerts, sports tickets and high-end restaurants may get axed out of personal budgets.
Projections currently reflect increased confidence that 2025 will deliver the long-awaited soft landing in advanced economies, including Canada. The bet is that the disinflationary forces enabling central banks to lower policy rates will continue, and Xi Jinping’s policy stimulus will be enough to buoy China’s troubled economy. All good outcomes for Canada given that a third of our GDP is exports (75% to the U.S.), and the price of oil and other commodities are highly influenced by Chinese demand. Still, it’d be a mistake to underestimate the threat of U.S. tariffs and trade protections, geopolitically driven disruptions and fiscal-sustainability concerns triggering market discipline in U.S. treasury or other sovereign bond markets. And Canada’s prospects are handicapped by the fact that population growth is set to slow abruptly, and chronically moribund productivity growth doesn’t seem poised to pick up the slack.
— Carolyn A. Wilkins, Senior research scholar at Princeton’s Griswold Center for Economic Policy Studies and former Bank of Canada senior deputy governor
Trade
↑ Upside: Despite rising protectionism, global trade as a share of world GDP has not actually deteriorated. Supply chains are being rejigged, but Canada may stand to benefit. “U.S. trade with China is going down. There are opportunities for Canadian companies to get themselves embedded in those supply chains,” Bank of Canada Governor Tiff Macklem said recently. The continued strength of the U.S. economy means healthy demand for Canadian cars, commodities and other exports. And there are other tailwinds, including the completion of the Trans Mountain Pipeline expansion, which has increased access to Asian markets for Canadian energy products and narrowed the price discount to U.S. oil.
↓ Downside: With Trump back in the White House, trade is in the cross-hairs. The incoming president has promised a tariff on all imports of 10% to 20%. This could carve as much as 2.5% off Canadian GDP, RBC economists estimate. Canada may be protected by the United States-Mexico-Canada Agreement. But it’s up for review in 2026, and the U.S. could push for rules favouring American carmakers and more access to Canada’s supply-managed sectors. Meanwhile, China is hitting Canadian canola in retaliation for tariffs on electric vehicles, New Zealand and the U.K. are griping about Canada’s dairy protections, and the relationship with India has cratered.
Jobs
↑ Upside: Companies start hiring more, and the unemployment rate drops back below 6%. Job vacancies—which have been in a slide for the past two years—start picking up. With borrowing rates on the decline, the corporate sector becomes more optimistic about the economy and gets ambitious. Hiring picks up in construction, manufacturing and technology, where employment growth has been weak (or non-existent) in recent memory. For workers, wage gains remain solidly above inflation, leaving their wallets better off.
↓ Downside: Over the past two years, the Canadian labour market has been characterized by weak hiring but also weak layoffs. Good news for people established in their careers, bad news for people joining the workforce (recent immigrants and young people). The risk is that hiring remains in a slump, or worse yet, layoffs become more frequent. It’s tough to envision this happening in a rate-cutting cycle. However, there’s a great deal of policy uncertainty on the horizon, given a new and unpredictable White House administration and an imminent Canadian election. Companies may opt to stand pat.
“Canada faces the risk of losing its AAA credit rating, and the federal government is increasingly likely to violate its fiscal anchors. As it stands, we expect the government to barely be able to prevent debt-to-GDP from rising. But spending commitments continue to accumulate across key areas. The government went on a hiring spree recently to address some of these challenges. Yet, a larger public-sector workforce adds to expenditures while generating little long-term wealth. On the revenue side, nominal GDP growth faces pressures from slowing inflation, the immigration curtailment and the mortgage renewal cycle. Meanwhile, receipts from the capital gains tax measure are expected to fall short of projections.
— Jimmy Jean, Chief economist of Desjardins
Industrial policy
↑ Upside: Canada’s bet on the electric vehicle industry could start to pay off. Supported by massive government subsidies, a handful of global automakers and automotive suppliers—including Stellantis, Volkswagen, Honda and Northvolt—are building EV battery plants in Ontario and Quebec. This should anchor a broader EV battery supply chain and create thousands of manufacturing jobs. Demand for EVs isn’t rising as fast as automakers had hoped, but there has been a steady uptake in Canada, especially in Quebec and B.C. In the second quarter of 2024, 12.9% of all new vehicle registrations were zero-emission, up 38% year-over-year. More than half were in Quebec.
↓ Downside: Dangling $50 billion in subsidies in front of global automakers doesn’t guarantee you’ll get a thriving EV industry. Ottawa has convinced a number of carmakers to locate part of their EV supply chains in Ontario and Quebec. But there are already signs that things aren’t going as planned. Ford has postponed a $1.8-billion plan to build EVs in Oakville, Ont. The future of Northvolt’s $7-billion battery plant in Quebec is in question after the Swedish company announced layoffs and a production slowdown. EV registrations are rising in Canada, but not fast enough to meet the government’s targets. High prices and a lack of charging infrastructure continue to stunt demand.
Artificial intelligence
↑ Upside: AI has a breakthrough year. Yes, there’s already a ton of hype. But as of this past spring, only 6% of Canadian businesses had used AI to produce goods or deliver services over the previous year, according to a Statistics Canada survey. AI adoption was especially weak in resource extraction (1.6%) and hospitality (0.9%). If more companies can tap into AI, we could be heading into an era of stronger economic growth—at least according to AI’s most ardent supporters.
↓ Downside: The AI hype fizzles. This doesn’t mean it won’t have a big impact on business operations—that progress just might take time to materialize. Maybe companies have already reaped the easy gains (such as AI chatbots), or their operations are built on tough, labour-intensive processes (think construction). Any rethink of AI’s potential could have disastrous effects on the stock market, which has relied on AI for recent gains.
Sometimes it pays to be a ‘fast follower’ with technology, but with generative AI, that could be a fatal mistake. This is the year to commit to ensuring you have the people, skills and infrastructure required to scale GenAI, along with robust risk controls. For large organizations, the greatest challenge will be culture change and a willingness to reimagine every task, from sorting mail to developing new products to structuring portfolios or insurance underwriting. And with some estimates suggesting GenAI could boost global GDP by 7% or more, and productivity by 1.5% or more, it could increase global prosperity. But we need to ensure lawmakers approach regulation in a way that balances the drive for innovation with protection against the risks and downsides. With our talent and record of innovation, 2025 is the year Canada could become a global GenAI leader.
— Roy Gori, CEO of Manulife
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