The Globe and Mail and Report on Business magazine brought together leading industry experts for “Economic Outlook,” an event held at The Globe and Mail Centre. The event focused on how Canadian businesses can position themselves for growth in 2025 amidst a turbulent landscape with high interest rates, inflation, and low productivity. Discussions also highlighted the effects of the U.S. election on Canadian markets and industries.
Tariffs set the stage for economic disruption
As inauguration day approaches, many are speculating about how Trump’s second presidency might affect Canadians, with the latest news about the proposed 25% tariff causing particular anxiety.
The Bank of Canada is working under the assumption that the tariffs won’t be implemented, an estimate likely born from the logic that since the two economies are intricately tied together, the potential downsides for the American economy will ultimately deter any tariff follow-throughs.
However, the Desjardins Group is forecasting a 10% tariff, which they consider a realistic estimate of the policy’s potential implementation. Even in this scenario, the outlook remains mixed. In the short term, stockpiling by American importers could shield Canadians from the effects of the tariff. Over time, however, the tariff is expected to hinder economic growth, with Desjardins projecting a slowdown to 1.2% growth. Anything less than 1% is a recession, so even in the most conservative estimates of a 10% tariff, Canadians could be looking at a recession by 2026.
Still, some guardrails could cushion the blow, namely, currency depreciation. “The more the currency depreciates, the more it muffles the impacts of the tariff,” said Jimmy Jean, Vice President, Chief Economist and Strategist at Desjardins.
Turning population declines into productivity gains
In Canada, 2024 saw a 3.3% immigration increase, the fastest population growth rate in nearly seven decades. The Trudeau government is now targeting a reduction in immigration targets, stating that we will see a population contraction in the next two years. These estimates seem unlikely. Jimmy Jean said, “Canada doesn’t have experience implementing a population reduction plan, and the international experience with those approaches proves that it’s much more difficult to execute.” Desjardins is still forecasting slower growth, which should further reduce GDP growth in the next two years.
Regardless of whether the Canadian government can deliver on this, any slowing of the population will inevitably have a synonymous slowing effect on the economy. Affected businesses will need to adapt, and while this will bring a host of challenges, it also presents a significant opportunity for improving productivity.
Neil Cawse, CEO at Geotab, said: “A lot of the lack of productivity in Canada boils down to a lack of investment in innovation and technology in businesses. In business and in life, you need to take risks.”
How population trends are reshaping housing costs
Housing affordability is a crucial issue for many Canadians, and the next couple of years provide a mixed picture. Rent inflation has reached a peak of 9% this year, and while it’s dropped to just over 7% more recently, there is still an affordability crisis. This is an area where the decreases in population growth will make an impact, helping to lower rental inflation significantly.
Michael Water, CEO of Minto Group, stated, “We think about population as the prime driver of demand for housing, and certainly moderating your population growth would moderate demand for housing. That may not necessarily be a bad thing. We had a tremendous supply-demand imbalance before the immigration policy changed in 2016, and the population started to ramp up.”
While the future looks bright for rental costs, the same cannot be said for affordability when buying. According to Desjardins, policies like the extension of amortization for first-time home buyers and buyers of a new home will have a short-term impact but further boost prices later on by an estimated 7%.
The Canadian innovation deficit
Canada faces a significant challenge with low productivity and limited innovation, driven by a lack of competition in the marketplace and a political system that fails to encourage businesses to invest in innovative technology and practices.
Justine Hendricks, President and CEO at Farm Credit Canada, addressed this, saying, “There is a gap in Canada in terms of how much we are investing in innovation, and we need to close that gap to get these innovations to market. We have the talent in Canada but we’re not putting enough effort into keeping up and remaining competitive in the market.”
Innovation and automation will increase productivity and allow businesses to operate with smaller workforces. There is significant opportunity and potential, but it requires a leap of faith on the part of businesses, something that the government should take a more active role in encouraging.
Dan Breznitz, Professor and Munk Chair of Innovation Studies in the Munk School of Global Affairs and Public Policy at the University of Toronto, argued that businesses don’t have incentives to invest in innovation, “If you look at profits, they’ve been going up. So something is wrong with our environment, with the way we structure the economy, the way we structure competitiveness overall, and it’s the role of policy to change that.”
Dan suggested that Canadian companies focus on exporting rather than importing from the United States. He also emphasized the importance of addressing factors that make investing in innovation feel risky, such as high telecommunications and data costs and taxes.
“We have everything we need and a vision of what we want society to look like, but then we don’t go and do the last step, which is create the economy that would use those skills,” he concluded.
Looking to the future
For more insights into the coming year and how it will affect business, read Report on Business magazine’s ‘2025 Economic Outlook’ feature, which provides an in-depth analysis by The Globe’s economics team and essential insights from leading business CEOs. Topics range from Trump to inflation, artificial intelligence, consumer spending, and more, with the feature providing the upsides and downsides to the most pertinent issues facing the economy in 2025.
