A tradesperson works on a rental housing building site in Vancouver in August, 2023.DARRYL DYCK/The Canadian Press
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.
This was not in the textbook
Jim Stanford, economist, Centre for Future Work
Economics textbooks typically teach that the main cause of inflation is excessive growth in wages. The solution is to maintain a sufficiently high rate of unemployment (the so-called non-accelerating inflation rate of unemployment, or NAIRU) to keep wages under wraps and inflation low. Bank of Canada Governor Tiff Macklem had this story in mind when he warned in 2022 that unemployment – then around 5 per cent – was too low. He then pledged to increase it – which he promptly did. It’s now 6.8 per cent.
But the relevance of the textbook story to inflation as COVID-19 eased was always questionable. And in hindsight, it’s now clear there’s been no predictable relationship between wage growth and inflation in Canada at all. Prices took off in mid-2021, with wage growth in the doldrums. Workers demanded more pay to keep pace, but wages still lagged well behind prices. By mid-2022, inflation peaked, yet wages kept chugging along.
Inflation is now back to the central bank’s 2-per-cent target. Yet wages are still growing at 4 per cent. Wage growth has exceeded inflation for 22 straight months, repairing the damage to purchasing power from inflation. Real wages are now as much as 5 per cent higher than in 2019. So, on the way up (when prices rose alongside weak wages) and on the way down (when inflation slowed despite rapid wage growth), the textbook wage-price story has been disproven.
The high price of lower prices
Timothy Lane, former deputy governor, Bank of Canada
Although inflation is now back down to 2 per cent, people are understandably dissatisfied: Prices are still high. Canada’s Consumer Price Index is now well above where it would have been with steady 2-per-cent inflation – after decades when inflation hovered around the 2-per-cent target. Average wages have risen even more than prices, despite lacklustre productivity.
So what’s to be done now? Bringing prices back down may sound appealing, but that would require a deep and prolonged recession that would impel companies to cut prices and workers to accept lower wages. In contrast, the Bank of Canada has a mandate for targeting inflation that means letting bygones be bygones – continuing to target 2-per-cent inflation for the future, regardless of past deviations, and aiming for balance in the economy and labour market. This is surely less painful than doing what it would take to reverse the overshoot.
This whole episode is also a reminder that, even if most people don’t pay much attention to inflation when it’s low, stable and predictable, they do care deeply when it’s unusually high.
Work-from-home truths
Tammy Schirle, professor of economics, Wilfrid Laurier University
Canadian employers are settling into a new normal, in which a large portion of employees are working from home. In August, 2024, 27 per cent of women and 22 per cent of men spent at least part of their week working from home, which is at least triple the rate seen before the COVID-19 pandemic. A recent study found that in some industries, such as finance and insurance, roughly two-thirds of employees were working from home. It’s a popular arrangement among parents (moms and dads), and a wide range of people enjoy the opportunity to avoid the commute and use that personal time more productively.
I’m now looking at how work-from-home opportunities can make it easier for more people to enter the work force, move into better jobs and be better able to keep their jobs. I expect this to be particularly important for moms with young children and people with disabilities, groups for which we saw a surge in employment alongside the rise of work-from-home arrangements.
Labour lag
Brendon Bernard, senior economist for Canada, Indeed.com
Employment growth is usually the first data point highlighted in Statistics Canada’s monthly Labour Force Survey, but this statistic doesn’t originate from the survey itself. Rather, Statscan calculates the number by combining the employment rate among survey respondents with an estimate of the size of the population.
This population estimate isn’t typically a first-order concern for analysis of the survey, but since 2020, the estimate has responded slower to swings in international migration than other data sources. Once again, amid Ottawa’s latest shift in immigration policy, the survey reported rapid 3.6-per-cent year-over-year population growth in October, compared to a deceleration to 2.3 per cent growth, according to Statscan’s quarterly population estimate.
This divergence in reported population growth suggests recent employment growth reported in the survey – which averaged a robust 37,000 over the three months through November – could be exaggerated. Employment and unemployment rates, which adjust for population, have steadily deteriorated and will probably provide a better gauge of trends heading into 2025. Job seekers need a labour market turnaround, as Canadians looking for work are facing increased challenges at various points in their careers.
All worked up
David Wolf, portfolio manager, Fidelity Investments
Working arrangements – where, when and how we work – have tended to become more flexible in recent years. The COVID-19 pandemic blew up the antiquated nine-to-five, Monday-to-Friday, in-the-office paradigm that was unnecessarily rigid for a lot of today’s jobs. For many people, this has been a “nice to have,” allowing us to arrange our lives better (more time with family, less need for pants and so on). But for some of us, this flexibility has been a “have to have” to participate in the labour force at all, such as people who can’t spend a full day at a work site.
Two groups for whom this may be particularly relevant are people with disabilities and women with small children. As the chart shows, for those two cohorts in the United States, the labour force participation rate – the percentage of working-age people who are available to work – has soared since the pandemic began. A similar dynamic has been observed in Canada. That translates into millions more Americans and hundreds of thousands more Canadians who are now able to work, which is meaningful not only to them but also to overall growth in the economy. Amid the economic challenges we face, I think that’s some unambiguously good news.
Vibe check
Jennifer Robson, professor of political management, Carleton University
This is a story that really needs more than one graph – it’s about much-vaunted “vibes” and the destabilizing effects of the COVID-19 pandemic that are still with us in Canada, with more instability on the horizon.
Compared to the prepandemic period, Canadian consumers’ subjective beliefs about the economy have suffered a lot of shocks. Average consumers now have less confidence that their wages will keep up with inflation (first panel) or that household income will keep up with household spending in the next year (second panel). Things are improving, though still far from the prepandemic trend.
But these negative vibes are not necessarily “off” relative to the real experiences of many households who are seeing growing gaps between what they take in as disposable income and what they spend. When income is greater than spending (above the break-even line) households are making ends meet and saving the extra. When income is less than spending, households are falling behind, taking on debt to cover the spending. Since early 2022, households with low and middle incomes (panels 3 and 4) have not seen their disposable incomes keep up with spending and are taking on larger debts to make up the difference.
By contrast, the wealthiest households spent down some of their excess savings but are now regaining ground. Why does this matter? Consumers who are always in a net negative financial position after using up their disposable income are much less likely to have positive expectations for the future. Given yet more sources of turbulence on the horizon, it’s difficult to see us settling back to relatively stable prepandemic vibes in 2025.
All things being unequal
Jim Balsillie, former co-CEO of BlackBerry Ltd. and co-founder of the Council of Canadian Innovators
As the Trudeau government nears its end after nine years of troubling economic outcomes, we can add another to its track record: historic levels of inequality in Canada. Income inequality is now at the highest level ever recorded, and purchasing power (how far your paycheque goes to make ends meet) has plummeted for the most vulnerable 20 per cent of Canadians. Shrinking purchasing power of paycheques caused higher levels of food insecurity, with one in four parents cutting food consumption to feed their kids, and record use of food banks.
Without capacity or competence for the contemporary economy, or even interest in designing a prosperity strategy, the Trudeau government embarked on a redistribution plan that featured a war against small businesses in 2016 and against entrepreneurs in 2024.
Because the government didn’t understand the role generation of new wealth plays in an economy or how capital moves in high-value-added sectors, its strategy resulted in shrinking GDP per capita in a manner that is disproportionately hurting the most vulnerable Canadians.
As Mr. Trudeau prepares to step down, his government is now telling Canadians it’s all misplaced vibes and they’ve never had it better. Their shrinking paycheques tell a very different story – their experiences are real, and they’ve never had it worse.
The vibes don’t lie
Charles St-Arnaud, chief economist, Alberta Central
Some have expressed skepticism of what has been called the “vibecession,” saying that Canada’s economy is strong and that households are wrong to feel bleak. However, the data confirm households’ perceptions. Real disposable income per capita and consumer spending per capita are both well below where they should be if they had continued to grow at their prepandemic pace, by 5 per cent and 7 per cent a year, respectively. This difference between where income and spending are currently and where they should be (that is, their trends) explains why households feel like they’re falling behind. And they are indeed falling behind.
This has implications. Without the rapid population growth in recent years, we estimate that the Canadian economy would have been in a recession at the end of 2023. The reason is that while individual households are reducing their spending, we’re collectively spending more because of the greater number of consumers. This is important to keep in mind as population growth is expected to slow meaningfully in 2025. Without a rebound in spending per capita next year, growth will likely be meagre.
Public grudge
Philip Smith, economic analyst and former assistant chief statistician at Statistics Canada
For Canada, 2025 will be a year of upheaval. The new Trump administration threatens big tariffs, Canada’s federal budget is off-track, Ottawa is pressing down on population growth, a real possibility of recession looms and a probable change-of-government election is on the horizon. Added into this uneasy mix is the likelihood of major public sector labour tensions.
The accompanying chart shows how public-sector wage increases have lagged consistently behind those in the private sector since COVID-19 began. Workers in health care, education and public administration have fallen behind, though wages have at least caught up to and moved past the rate of inflation. These workers will be pressing as hard as they can to catch up to the private sector, while the economy might well be reeling at the same time.
Stuck in the middle
Miles Corak, professor of economics, Graduate Center of the City University of New York
Economic mobility across the generations varies depending on parents’ income. Children born to parents at the top are more likely to be top earners in their adulthood; those born at the bottom are more likely to be stuck in the bottom as adults.
But this chart shows that for middle-income families, there’s high fluidity. Children of middle-income families in Canada and the United States are as likely to fall as they are to rise on the income ladder, meaning family background doesn’t give them any advantage or disadvantage. This sounds like complete equality of opportunity, something a meritocratic society is inclined to celebrate.
Can this be a problem? Not if the rungs on the ladder are close together. If the income distribution is relatively equal, moving along the ladder doesn’t translate into much material loss or gain. But over the past generation, that has not been the case, with higher and higher inequality heightening the consequences of falling down or climbing up, particularly so at the top end of the American income distribution.
When this goes together with economic growth that has been polarizing – leaving many children to fall not just relative to their peers but also compared to their parents – it may well contribute to growing insecurity and resentment of earners at the top – the so-called elite. Middle-income parents, in spite of doing everything right, don’t have much say in giving their children an edge in life.
Surely this anxiety is more aggravated if the focus is on wealth, with growing inheritances and the Bank of Mom and Dad giving some children a boost toward home ownership and more financial security than their equally talented and energetic counterparts.
To celebrate equality of opportunity, citizens need the assurance that comes with inclusive economic growth that enhances equality and raises living standards for all. Without this, equality of opportunity is a source of insecurity for many middle-class families.