People walk past local stores on Yonge street in Toronto, in May, 2023.Ammar Bowaihl/The Globe and Mail
To help make sense of 2025, The Globe and Mail asked dozens of experts, including economists, investors, academics and business leaders, to each choose a chart they think will be important to watch this year.
IP or not IP
David Watt, Watt Strategic Economic Advisors
This chart gets to the root of Canada’s underwhelming productivity performance, which spills over into our lagging relative competitiveness. It contrasts how much a country invests toward dwellings (residential investment) compared to how much investment goes toward intellectual property products, as a share of gross fixed capital investment.
Canada’s ranking at the top of the chart shows we don’t have the balance right. Investment in dwellings is too high – yet we have a severe housing supply problem – and investment in IP products (or other productivity boosting investments) is too low.
Canada is effectively trying to compete while running with a backpack full of bricks.
A product of misfortune
Arlene Kish, director for Canada economics, S&P Global Market Intelligence
Based on the most recent S&P Global Market Intelligence Manufacturing Purchasing Managers’ Index, Canada’s manufacturing sector is poised to recover after many months of sluggish production, recently associated with labour disruptions at ports and railways. The strong demand bodes well for the outlook for real gross domestic product by industry for early 2025, as firms report that upward momentum will likely continue. However, will this optimism last?
There’s a large degree of uncertainty surrounding trade with the United States due to policy announcements after the U.S. election – specifically president-elect Donald Trump’s proposed 25-per-cent tariff on all imports from Canada. This led Prime Minister Justin Trudeau and high-ranking Liberals to immediately begin talks with Mr. Trump to address his concerns about illegal immigration and cross-border drug smuggling. While not announced yet, Canada could impose retaliation tariffs, as it did during the first Trump administration.
This would negatively impact the outlooks for trade, real GDP, industry output, inflation and monetary policy relative to current expectations. Look out, Canada: We could be in for a bumpy ride in 2025.
Labour gains
Katherine Judge, senior economist, CIBC Capital Markets
Population growth was crucial in keeping Canada’s economy afloat in 2024, but while we expect more restrained increases in head count ahead, that needn’t prevent an acceleration in gross domestic product growth over the next two years. For one, more people already on Canadian soil will be able to find work as per-capita demand recovers with lower interest rates. Businesses should also be able to squeeze more out of each worker after two years of outright declines in output per hour. Productivity growth historically has gained momentum in periods when activity accelerates enough to push down the unemployment rate (chart), as workers have less idle time on assembly lines and construction sites, and service workers get busier with customers. If Canada can avoid the downdraft of U.S. tariffs, better times lie ahead after a couple of sluggish years under the drag of high interest rates.
No risk, no reward
John Ruffolo, founder of Maverix Private Equity and co-founder of the Council of Canadian Innovators
Canada’s future prosperity rests to a large degree on its ability to grow the economic pie for everyone. An increasing store of national wealth helps ensure our capacity – and the ability of subsequent generations – to fund the various social programs that contribute to Canadians’ standard of living.
At the core of the wealth creation process are entrepreneurs. They are the mavericks, risk takers and visionaries who choose to build businesses here, in many cases having only recently arrived in Canada. As the businesses mature, they become the source of innovations that help keep Canada’s economy competitive.
In shouldering the risks associated with founding new businesses, entrepreneurs rely on a supportive infrastructure. This includes public policies that ideally facilitate, rather than frustrate, their ambitions. The decreasing trend observed in the accompanying chart is therefore extremely concerning.
What has happened to our national economy that is making entrepreneurship more difficult and less attractive? What obstacles are impeding our entrepreneurs’ progress, whether in terms of financing, market entry, legal hurdles or other issues? We need to identify the barriers that are preventing people from becoming entrepreneurs and remove those stumbling blocks.
Our future national prosperity hangs in the balance.
Small but mighty
Pierre Cléroux, chief economist, Business Development Bank of Canada
The health of small and mid-size enterprises (SMEs) is critical to Canada’s economy. They generate 88 per cent of private-sector jobs and over 50 per cent of the country’s gross domestic product. To better understand how these businesses are faring, we developed the Canadian Small Business Health Index with Equifax. As indicated by the index, rising interest rates hurt small businesses, limiting their ability to invest and create jobs. However, starting in late 2023, there’s been a slow but steady improvement.
The index tracks four components: credit performance, business confidence, growth projection and business environment. In the third quarter of 2024, it stood at 97.5, a 4.7-per-cent increase from the same quarter in 2023 and 1.5-per-cent better than the second quarter. The stronger results are primarily due to an improved business environment and higher confidence. They support our belief that the economy will continue to recover in 2025, gathering strength as the year progresses.
BDC and Equifax teamed up to develop this index to provide a more holistic picture of SME health, using survey, credit bureau and macroeconomic data. The index is also available regionally for British Columbia, Alberta, Manitoba/Saskatchewan, Ontario, Quebec and the Atlantic provinces.
Artificial sweetener
Joshua Gans, Jeffrey Skoll Chair in Technical Innovation and Entrepreneurship at the University of Toronto’s Rotman School of Management
This graph shows how quickly the costs of large language models are falling over time. Of course, this is just the straight-out costs and doesn’t take into account that the newest generations of models are significantly superior in quality to earlier generations. But the fact that costs are falling suggests we may be rapidly approaching a time when the use of artificial intelligence foundational models is as cheap as other software. This will open up an extraordinary number of applications. For instance, in education, the use of AI to provide personalized tutors is limited by cost, which constrains the number of interactions AI can have with students. As this changes, there will be scope for real transformation.
Why Canada doesn’t compute
Viet Vu, manager of economic research, and Graham Dobbs, senior economist, the Dais at Toronto Metropolitan University
“AI compute” refers to the machinery and software that powers new artificial intelligence technologies developed by researchers and companies. This technology infrastructure powers the AI applications you use on your computer and mobile phone. Despite Canada’s leading position in global talent, entrepreneurship success and AI research (now boasting Nobel Prize laureate Geoffrey Hinton), we lag heavily in commercial adoption and infrastructure access.
In fact, Canada ranks last in the Group of Seven countries in terms of computing access, forcing world-class innovators to primarily rely on the United States for expensive, privately-owned computing resources. From advanced climate and weather modelling, to training machine learning algorithms and discovering new drugs, many public-interest innovations also rely on public access to computing resources.
Announced last March, Ottawa plans to invest $2.4-billion in its Sovereign AI Compute Strategy. With U.S.-Canada economic relations under threat, it’s more critical than ever to build our nation’s own AI infrastructure. As Canada’s Innovation Minister, François-Pillippe Champagne, said, “We have the brain. Now we need the mainframe.” However, public investment in AI compute capacity will do little to close the existing gap with the U.S. if it doesn’t attract private sources of investment, scale homegrown AI companies and support productivity-enhancing business adoption of AI.
Crude awakening
Rory Johnston, oil market research and founder, Commodity Context
The Canadian and U.S. oil industries have grown together and have become increasingly dependent in both directions across the 49th parallel. Roughly 10 per cent of U.S. crude oil exports flow north to Canada, where the United States has become the dominant source of Canadian crude imports. Today, U.S. shipments account for more than half of Canada’s imports, replacing what were, historically, barrels from the Middle East and West Africa. But a far larger volume of crude oil flows south; Canada has been the largest source of U.S. crude imports for more than two decades. Over time, Canada has steadily, and then rapidly, consolidated that position, now accounting for more than half of total U.S. foreign crude purchases, or nearly four million barrels per day.
This symbiotic relationship grew out of decades of trust and mutual self-interest. President-elect Donald Trump’s threatened tariff on all Canadian goods, including oil, violate that cross-border trust and risk economic harm to Canadian crude producers, as well as U.S. refineries and consumers.
More power to you
Stéfane Marion, chief economist, National Bank of Canada
One of Donald Trump’s critical strategies to reindustrialize the United States without triggering inflationary pressures is ensuring manufacturers have access to reliable and affordable energy. This is where Canada plays a vital role as the most trusted energy supplier to America. The importance of this partnership grows when considering the electricity constraints hindering the deployment of the new economy. For example, it’s estimated that around 40 per cent of planned AI data centres in the U.S. are unlikely to be built because of electricity constraints, a challenge expected to intensify by 2027-28. The American private sector sees Canada’s potential as a reliable and valuable electricity supplier. Our country has the capacity to step up, but this potential is jeopardized by Ottawa’s current plan to decarbonize the electricity grid – a grid that’s already 50-per-cent cleaner than the OECD average and twice as clean as the U.S. grid in terms of carbon dioxide emissions. We must urgently rethink this policy and strategically leverage our energy sector to strengthen Canada’s role within the North American supply chain.
It’s not the tax, man
Andrew Leach, professor of economics, University of Alberta
We hear a lot about how Ottawa’s carbon tax has driven up inflation, but underlying commodity prices remain the most important driver of energy costs for consumers. We see this effect in diesel fuel and gasoline costs. Prices today remain well below highs seen in 2022, and this despite substantial increases in the carbon tax in 2023 and 2024. This is especially apparent for natural gas; the commodity cost of gas has fallen dramatically in recent years.
With the looming federal election and the prospect of the removal of federal carbon pricing, a chart I’ll be watching this year will be all-in natural gas costs. After adjusting for inflation, natural gas costs in Alberta remain well below the highs seen in the early 2000s. Even with carbon charges far above commodity costs, total costs for natural gas are about half what they were in the first half of 2022.
The removal of the federal carbon pollution price, should the move come to pass, would take $4.75 per gigajoule out of natural gas costs right away, assuming the planned increase in the tax in April, 2025, goes ahead. This would be a very substantial decrease, without question.
However, another event Western Canada will be watching with interest will be the midyear startup of exports from the LNG Canada terminal on the coast of British Columbia. I don’t think anyone is expecting that LNG Canada will pull gas prices up enough to offset the removal of the carbon tax, but it should have a countervailing impact on currently deeply-depressed Alberta gas prices. So, if the tax is axed, how much less will Albertans (and Canadians elsewhere) end up paying on their natural gas bills?