Canada’s Economic Resurgence: What to Expect by 2025 – Insights from Deloitte

In a recent economic forecast, Deloitte Canada predicts that after two years of mediocre growth, Canada's economy is poised to 'hit its stride' in 2025. This optimistic outlook is based on expected increases in consumer spending, a recovery in the housing market, and anticipated interest rate cuts from the Bank of Canada.

Deloitte suggests that as inflation rates continue to stabilize, the central bank is likely to lower its benchmark policy rate. With two rate announcements left this year, Deloitte forecasts a 25 basis point reduction on each occasion, bringing the rate down to 3.75%. This trend of looser monetary policy is expected to carry on into 2025, with predictions of rates falling as low as 2.75% by mid-year.

The expectation of lower interest rates is seen as a catalyst for restoring consumer confidence and stimulating housing activity, particularly in late 2024 and throughout 2025. "After a challenging couple of years marked by below-average economic activity, we anticipate a strong rebound for the Canadian economy in 2025," stated Dawn Desjardins, Deloitte Canada's chief economist, in an interview with Yahoo Finance Canada.

However, there are cautionary notes in Deloitte's analysis. Geopolitical uncertainties are touted as the primary risk to economic growth, with specific concerns about potential trade tariffs promised by former U.S. President Donald Trump should he be re-elected. Additionally, escalating trade tensions between Canada and China present further challenges.

On a more positive note, consumer savings rates have exceeded seven percent, marking the highest levels outside the COVID-19 pandemic since the early 1990s. This significant accumulation of savings could help households manage rising mortgage payments, contributing positively to the economy when consumer spending is unleashed.

Desjardins emphasized that the labor market plays a crucial role in the forecast. Despite an uptick in unemployment rates, from 6.6% in August to a projected 6.7% by the end of the year and a potential decrease to 6.2% by late 2025, she remained hopeful. "If we maintain stable employment levels and witness income growth, the challenges posed by increased mortgage costs are manageable," she noted.

It is critical to recognize that approximately half of outstanding mortgages have yet to adapt to the new higher interest rate environment, meaning many Canadians will face steeper costs in the coming years.

As we look forward to 2025, all eyes will be on Canada's ability to navigate these economic challenges and capitalize on its recovery potential. Will Canada’s economy truly rise to the occasion, or will unforeseen hurdles derail this promising outlook? Only time will tell!