Canada’s economy is set to close out 2024 on a weak footing, marked by slowing growth, rising unemployment, and structural inefficiencies. Looking ahead into 2025, a modest recovery is expected, supported by lower interest rates and fiscal measures. However, persistent challenges in per capita output, immigration execution, and external trade risks will test Canada’s resilience.

2024 RECAP: A YEAR OF TRANSITION AND FRACTURED MOMENTUM

Canada’s real GDP is projected to grow 1.1% in 2024, reflecting a year of uneven momentum:

• Q2 2024 provided temporary strength at 2.2% annualized growth, fueled by increased government spending and a modest consumer rebound.

• Growth sharply slowed in Q3 to 1.0%, highlighting structural challenges in productivity and labor markets.

• Q4 is expected to end at 1.8%, as fiscal measures like the GST holiday offer late-stage boosts.

Despite headline growth, per capita measures continue to deteriorate:

• Real GDP per capita is expected to contract -1.0% in 2024, and working population output to fall -2.0% as population growth outstrips economic gains (Chart 1).

Chart 1A: Growth Without Progress - Real GDP Rises While Per Capita Output Falls

Chart 1B: Stagnant Wealth - Real GDP Per Capita in Decline

2025 OUTLOOK: A MODEST RECOVERY AMID STRUCTURAL HEADWINDS

Canada’s economy is forecast to grow 1.8% in 2025, signaling a modest improvement from 1.1% in 2024:

• Quarterly growth accelerates through 2025, with 2.0% in each of Q2 and Q3, underpinned by easing financial conditions and improved global trade dynamics.

• Government spending and modest investment recovery will act as key growth drivers.

However, challenges persist:

• Productivity remains a drag on growth, limiting gains in per capita output.

• Skepticism over the federal government’s immigration execution raises concerns about labor market mismatches and housing stability.

  
  

Key Takeaway: While GDP growth improves in 2025, structural weaknesses in productivity and demographics will limit upside potential.

January 2025