Canada's Economic Outlook Clouded by Uncertainty

OTTAWA, ON, July 7, 2025 /CNW/ - The Canadian economy is set to face further headwinds as uncertainty surrounding U.S. trade policies continues to weigh on business and consumer confidence, according to new research from The Conference Board of Canada. GDP is forecast to increase by 1.5 per cent in 2025.

"The economy outperformed expectations in the first quarter of 2025, but the momentum is quickly fading," said Cory Renner, Associate Director, Economic Forecasting at The Conference Board of Canada. "Trade disputes are casting shadows over multiple sectors of the economy and are expected to dampen growth throughout the remainder of the year."

Canada's housing market remains under intense pressure. Nervous buyers, elevated consumer debt, poor affordability, and weakening population growth are dampening an already cooling market. Government initiatives, including the federal government's promise of the new Build Canada Homes agency, will help, though only modestly. Looking ahead, a projected quarter-point interest rate cut in the latter half of the year will provide some additional relief.

The United States economy is losing momentum. Following two years of exceptional growth, the U.S. economy contracted slightly in the first quarter of 2025, for the first time since the beginning of 2022. Weakening consumer and business confidence, rising unemployment, and accelerating inflation, driven by the recent trade and immigration policies, are all dragging on economic activity. Growth is projected to slow to 1.4 per cent in 2025 before improving slightly to 1.5 per cent in 2026.

Given the trade conflict between Canada and the United States, Canada's trade sector is in for a rough ride. While Canadian exporters have turned to new markets with some success, these gains are insufficient to offset the sharp decline in exports from our largest trading partner. Import growth will also be held back as Canadians and businesses rein in spending.

Canada's labour market is showing signs of weakness. Fragile business sentiment is dampening hiring plans, slowing job growth and pushing the unemployment rate upwards. The effects of the federal government's 2024 migration policy changes are also beginning to take hold, with employment growth outpacing labour force growth in the first quarter of 2025.

Business investment is expected to suffer, with concerns over the Canada-U.S. trade relationship keeping spending subdued. Targeted policy measures aimed at making Canada a more attractive place to invest could help boost capital spending and offer some much-needed support. However, ongoing uncertainty in the electric vehicle space is adding downside risk to the forecast. 

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SOURCE Conference Board of Canada