After two years of slower economic growth, Deloitte Canada predicts that the Canadian economy will gain momentum in 2025, according to its latest economic forecast. (Photo by Roberto Machado Noa/Light Rocket via Getty Images) (Roberto Machado Noa via Getty Images)
According to Deloitte Canada’s recent economic forecast, the Canadian economy is expected to bounce back in 2025 after experiencing a couple of challenging years. The economic growth of 2023 and 2024 has been described as “subpar,” but Deloitte predicts brighter times, driven by stronger consumer spending and a recovery in the housing market.
The report suggests that as inflation continues to decline, the Bank of Canada will further lower its interest rates. Deloitte anticipates a 25-basis point cut during the central bank’s next two announcements, reducing the key rate to 3.75%. By mid-2025, the forecast expects the rate to fall even further to 2.75%. This reduction is seen as a crucial factor in improving consumer confidence, which should in turn stimulate economic activity, especially in the housing sector. Housing transactions, Deloitte says, are likely to pick up towards the end of 2024 and continue strengthening into 2025.
Dawn Desjardins, the chief economist at Deloitte Canada, shared insights on this forecast. She believes that if inflation continues to ease and the Bank of Canada successfully lowers the policy rate to a more neutral level, consumer confidence will rebound. With more optimistic consumers, businesses are expected to feel more confident as well, spurring economic expansion. "This will set the foundation for stronger economic performance in 2025," Desjardins said.
Despite this optimism, Desjardins noted some potential risks. One of the most significant concerns is geopolitical uncertainty. Trade tensions, especially the possibility of new tariffs promised by former U.S. President Donald Trump if re-elected, could weigh heavily on the global economic outlook. Rising tensions between Canada and China also pose potential risks. These uncertainties could slow the expected recovery and dampen growth prospects.
On the positive side, Deloitte highlights the recent rise in Canada’s household savings rate, which surpassed 7% last quarter. This is the highest savings rate seen outside the pandemic period since the early 1990s. These savings could help consumers manage higher mortgage payments, which remain a challenge for many. Should consumers tap into their savings, it could inject additional funds into the economy, further boosting growth.
The labour market also plays a critical role in Deloitte’s forecast. While there has been some slack in the job market, with unemployment hitting 6.6% in August, Deloitte anticipates only a slight rise to 6.7% by the end of 2024 before improving again. Desjardins emphasized that as long as people keep their jobs and experience some income growth, they should be able to manage higher mortgage payments. This job stability is a key assumption in Deloitte's positive forecast for 2025.
However, if labor market conditions deteriorate, it could undermine the expected recovery. Desjardins cautioned that if unemployment significantly worsens, the Canadian economy could face a much weaker year in 2025 than currently projected.
