In 2024, North American economies experienced turbulence – highs and lows that were more pronounced and debated about in some areas more than others.
Concerns around mounting debt, inflation, housing affordability and the general cost of living punctuated the news and economic discourse.
At the same time, incremental improvements and stock market success also proved beneficial and promising.
Here are some trends and themes we can expect to see in 2025.
Economic Growth
The U.S. economy is expected to grow at a trend-like pace of 2.0% in 2025, driven by a resilient economic backdrop after a robust 2024.
The lagged impacts of monetary policy tightening by the Federal Reserve are expected to stabilize, with core personal consumption expenditures (PCE) inflation projected to move closer to the Fed’s 2% target.
The Fed funds rate will likely ease to 3.25% by year-end, aligning with a neutral level. However, potential policy shifts under the new administration, including tax reforms and deregulation, could stimulate growth in domestic and cyclical sectors.
At the same time, risks from tariffs and immigration restrictions might lead to stagflationary pressures.
Canada’s economy is projected to grow at an average of 2.25% over the projection period, with inflation expected to hover near the 2% target.
Lower interest rates will support household and business spending, while exports are anticipated to bolster growth, particularly with new infrastructure like the Trans Mountain Expansion pipeline.
Residential investment is expected to rise, supported by declining interest rates and government policy changes in mortgage insurance.
Labor Market
The unemployment rate in the U.S. dropped to 4.1% today, reflecting a healthy labor market. Consumer spending remains strong, supported by wage growth, increased after-tax income, and high consumer confidence, particularly after a strong holiday sales season in late 2024.
Canada also posted a healthy employment figure today, adding 90.9k jobs. The overall unemployment rate dropped to 6.7%.
Market Sentiment
Equity markets are expected to continue to grow, with opportunities in sectors like AI, healthcare, and industrials budding due to technological advancements.
However, high valuations and a strong U.S. dollar add complexity, suggesting a need for careful portfolio management amidst policy and geopolitical uncertainties.
Inflation & Monetary Policy
Inflation has been somewhat lower in Canada compared to the U.S., aiding in keeping price pressures in check.
The Bank of Canada is expected to continue the gradual easing of policy rates to stimulate growth further, considering the stable employment situation and inflation trends.
Currency and External Factors
The Canadian dollar has faced downward pressure due to the interest rate differential with the U.S., although Canada’s healthier fiscal position might support the currency in the longer term.
There’s an acknowledgment of potential economic disruptions due to U.S. policy changes affecting trade.
Global Context
The global economic landscape in 2025 is marked by recovery from the pandemic, with developed nations like the U.S. and Canada showing resilience, though facing inflationary pressures.
Meanwhile, emerging markets present varied growth prospects. Geopolitical tensions and commodity price volatility due to ongoing conflicts add layers of complexity.
However, there’s optimism around the growth of digital technologies, AI, and the transition to sustainable energy, which could drive economic gains.
This outlook reflects current trends and forecasts, acknowledging the inherent uncertainties in economic predictions, especially with the influence of policy shifts and global events.
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