Canadian and American flags fly near the Ambassador Bridge at the Canada-USA border crossing in Windsor, Ont., in March, 2020.Rob Gurdebeke/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.
POLICY
GDP: Greatly Disappointing Policy?
Lawrence Schembri, senior fellow, and Milagros Palacios, director, Addington Centre, Fraser Institute
The Trudeau government’s deviation from the Chrétien, Martin and Harper governments’ consensus of fiscal prudence resulted in the worst decade of real growth of gross domestic product in Canada since the 1930s.
Fortunately, this poor economic performance was of the government’s own making, and we’ve seen this story before – in the mid-1990s. Will the next federal government follow the Chrétien government, and have the courage to adopt the fundamental policy reforms necessary to put the Canadian economy back on the road of economic prosperity and rising living standards?
Brain drain, big pain
Beata Caranci, chief economist, TD Bank
A new but old question has resurfaced as Canada faces tariff threats south of the border alongside a more competitive tax environment. Will the brain drain to the United States among high-skilled, high-income earners worsen?
This was a hot topic in the 1990s, when the rising U.S. tech sector set its sights on Canadian talent. Back then, the number of workers leaving Canada as a share of the total was small at less than 1 per cent. But the pattern revealed an increasing tilt toward highly skilled workers who were young, well-educated and well-paid. This was a pivot in migration from the older cohort aged 55-plus.
Today, Canada faces one of the weakest productivity performances among advanced countries, and that cannot be chalked up to a single, easy-to-cure factor. The regulatory business environment has become more complex against a higher tax base among households relative to stateside.
This graph shows that after a long period of stability in the number of Canadians leaving for the U.S., a jump in the past two years can’t be explained as catch-up from reduced flows early in the COVID-19 pandemic. It bears close monitoring if income opportunities create even more pull to the U.S. in the years to come. On the other side, people leaving the U.S. to enter Canada has downshifted relative to the prepandemic period.
To get the most out of Canada’s immigration policy recalibration, there needs to be a pivot to a higher share of skilled workers, and greater efforts on retention to stop a swelling in talent leaving for the U.S. Maybe this is an unattainable goal given the large gap in competitiveness, not to mention the lure of earning U.S. dollars alongside better housing affordability. If so, it means Canada must work harder to secure talent from other countries.
Far too taxing
Derek Holt, head of capital markets economics, Scotiabank
Canadian tax policy needs a reset. It’s long overdue. Time is of the essence to limit more damage from antiquated and punishing rates of taxation, and deal with a long-rising competitiveness threat, including from U.S. tariffs. The corporate taxation advantage that Canada once had disappeared after 2017, when the United States cut taxes. Canada’s misguided increase in capital gains taxation only further worsened tax competitiveness. We will soon be at a sharp disadvantage given the incoming U.S. administration’s plans.
Canada’s status as a smaller, more geographically dispersed and less diversified economy arguably means it should have a tax advantage over its southern neighbour. Canada competes in a North American capital market and economy, and sharp deviations on tax policy from the U.S. raise the risk of weaker investment in Canada, less competitiveness, poor productivity, fewer jobs, a lower relative standard of living and underperforming financial markets.
This costs everyone. Corporations don’t ultimately bear the burden of taxes; people do, given the incidence effects that land on individual investors, employees and consumers. Corporate Canada enjoys significant advantages, such as high educational attainment and public/hybrid health care. But when it comes to the choice over where to locate and produce, Canada faces a bigger tax disadvantage than it has in decades. Corporate Canada must also rise to the competitiveness challenges beyond taxes.
Non-permanent vacation
Mikal Skuterud, professor of economics, University of Waterloo
Over the past two decades, Canada has shifted to a two-step immigration system, in which the pathway to permanent residency for migrants is increasingly via a temporary study or work permit. Combined with an insatiable appetite for foreign students and workers among Canadian postsecondary institutions and employers, Canada has seen an explosion in temporary migration inflows. By Oct. 1, 2024, there were more than three million non-permanent residents in Canada, comprising 7.3 per cent of the overall population.
While the goal of many, and perhaps most, of these migrants is to settle permanently in Canada, doing so will prove difficult given the federal government’s reduced immigration targets announced in October 2024. A first-order policy issue is what happens to these migrants when their permits expire. The government will face much pressure to renew and extend visas, but doing do so is incompatible with its target of a 5-per-cent non-permanent-resident population share by the end of 2026. A growing population of residents with no legal status in Canada seems an unavoidable consequence. Quantifying the size of this growth remains a challenge for the government given current data gaps in tracking migrants’ exits from the country. Addressing these data gaps needs be a government priority in 2025.
Trump thump
Peter Berezin, chief global strategist, BCA Research
The greatest irony for financial markets in 2025 could be that Donald Trump’s proposed tax cuts end up sinking the U.S. stock market rather than boosting it.
The amount of interest Washington is paying on its debt is soaring – up from 1.3 per cent of gross domestic product in 2016 to 3.1 per cent in 2024.
Based on the market’s current interest-rate expectations, if all the expiring provisions in Donald Trump’s 2017 Tax Cuts and Jobs Act (TCJA) were extended, interest payments would rise to 5.5 per cent of GDP over the next decade. At that point, interest costs would account for more than 30 per cent of federal government revenues. This is clearly unsustainable. As Herb Stein, former chair of the Council of Economic Advisers, put it: “If something cannot go on forever, it will stop.”
U.S. Treasuries are not like Greek bonds. They’re the main source of collateral for the global financial system. The mother of all financial crises may be lurking around the corner, and investors are completely oblivious to it.
Diminishing returns
Tim Sargent, economist and director of domestic policy, Macdonald-Laurier Institute
Canada’s fertility rate – the number of children a woman can expect to have during her lifetime – fell again in 2023 to 1.26, the lowest ever recorded in Canada. This means that for every 10 Canadians, there will only be four grandchildren, even assuming the fertility rate doesn’t fall further. This is happening just as Canada seems to be reaching the limits of immigration policy, with increasing concerns about its ability to absorb large cohorts of newcomers. One thing is for sure: A society that doesn’t reproduce itself is not a society with a long-term future.
Baby bust? Meh
Frances Woolley, professor of economics, Carleton University
Canada’s fertility decline long predates the introduction of the birth control pill in the 1960s. Our birth rates have been falling for the past 100 years. The steep fertility decline in the 60s and 70s merely returned us to pre-Second World War birth rate trends.
Some experts would like to see birth rates rise again. Yet the 1940s and 1950s show that it requires massive economic change to move fertility levels. Those years saw Canada’s industrial capacity transformed by war. A transportation revolution created suburbia. Rising unionization rates and other policies heralded in an era of well-paid jobs for Canadian workers. A revised income tax act provided the fiscal basis for new infrastructure, and expanded health care and other social programs.
Pro-family economic changes of this magnitude are unlikely to happen again soon. Governments can still do things to help families. The expansion of the Canada Child Benefit in 2016 significantly reduced child poverty. But neither enhanced child benefits nor the introduction $10 per day child care in 2021 have had a visible impact on Canadian fertility trends.
Perhaps it is time to accept that many people today are childless by choice, and learn to live with it. Instead of bemoaning the lack of young workers, we need to do more to accommodate older ones, with more flexible hiring policies and simple accommodations such as seats for supermarket cashiers. And customers might have to accept that even though your latte is steaming hot, your barista may not be.
The core is heating up
Stephen Brown, deputy chief North America economist, Capital Economics
Consumer price inflation has been in line with the Bank of Canada’s 2-per-cent target in recent months, but there are worrying signs that underlying inflation pressures are building again. The return of inflation to the target has been partly due to declines in goods prices, as supply conditions have normalized and high interest rates have weighed on demand. But inflation for so-called industrial product prices – essentially wholesalers’ costs – has accelerated strongly in the past six months. That tells us that goods price inflation is likely to pick up again in 2025.
Worse still, trends in wholesale goods prices don’t fully reflect the recent weakening of the loonie, which will make imports more expensive. On top of that, if the Trump administration follows through with tariffs on imports from Canada, then it’s likely that Canada will respond with its own retaliatory tariffs on imports from the U.S., which will push up consumer prices further still. All this is one reason why we expect CPI inflation to be back above the 2-per-cent target by the middle of 2025, which means the Bank of Canada will have to bring its interest-rate cutting cycle to an end soon.
That’s not a gap. This is a gap
David Doyle, head of economics, Macquarie Group
After hiking its policy interest rate to 5 per cent, a level only slightly below the Federal Reserve’s peak rate range of 5.25 to 5.5 per cent, the Bank of Canada has embarked on an aggressive rate easing cycle. It has now cut rates by 175 basis points, far exceeding the 100 bps that the Federal Reserve has delivered. As a result, the U.S. federal funds rate now exceeds the Bank of Canada overnight rate by 100 to 125 bps.
In 2025, we expect this gap to nearly double to 175 to 200 bps, the widest since the late 1990s, and a trend that should result in continued loonie weakness. This is likely to occur as U.S. economic growth momentum remains firm, while Canada’s growth and inflation struggle due to continuing headwinds from mortgage-rate resets, the federal government’s U-turn on immigration policy, tariff uncertainty and subdued productivity growth. This Canada-U.S. rate gap should remain historically wide for several quarters, reflecting lower potential growth in Canada and an output gap that’s likely to narrow only gradually.
Real reconciliation
Bill Lomax, CEO, First Nations Bank of Canada
This compelling 30-year chart highlights federal settlements for specific claims, and negotiated settlements for past wrongs such as failures to provide promised reserve lands to First Nations communities. The data reveal a remarkable acceleration in settlements over the past decade, signalling a transformative shift toward economic reconciliation.
From 1974 to 2014, 305 settlements were reached, valued at $3.7-billion. In contrast, from 2015 to 2024, 312 settlements were finalized, totalling $10.9-billion. This dramatic increase in specific claim settlements underscores a growing commitment to addressing historical injustices suffered by First Nations.
The impact of this wealth transfer is profound. First Nations communities are now leveraging these resources to drive financial sovereignty and economic growth. Indigenous-owned businesses are thriving, serving as bridge builders between Indigenous and non-Indigenous communities. Investments in critical areas such as infrastructure, community development, education and language reclamation are laying the groundwork for long-term prosperity.
This surge in settlements and economic activity represents a pivotal moment in our history. First Nations are not only reclaiming their rights but also building a vibrant economic success story that will last for generations to come.
Inside jobs
Tabatha Bull, CEO, Canadian Council for Indigenous Business
Indigenous Peoples represent the youngest and fastest-growing population in Canada. Despite facing decades of economic exclusion, they are increasingly employing themselves, driving a resurgence in Indigenous entrepreneurship and economic development. This trend is clearly illustrated by the growth in self-employment rates among Indigenous Peoples from 1996 to 2021.
Population pinch
David Chaundy, CEO, Atlantic Economic Council
Atlantic Canada has been experiencing more deaths than births since 2015. Our population over time is actually shrinking, with serious implications for our economic future. The only factor that allowed our region to experience record population growth during the past few years was in-migration. However, the COVID-19-induced surge in net migration from other provinces has evaporated. And now the boost from international migration is set to slow due to federal policy changes.
Yes, slower population growth will help our housing market catch up. But projections clearly show a need for immigration over the next two decades to help replace retiring workers. The region is not producing enough young people of its own.
This demographic trend should be a concern across the country. While Atlantic Canada is leading the way, British Columbia has also had more deaths than births since 2021. Quebec is likely next, followed by Ontario.
We need a stable immigration policy that supports long-term economic growth, and labour and skills development. Otherwise, who’s going to build new nursing homes and care for our seniors? And who will generate the export and tax revenues to sustain our public services?
Caring is sharing
Armine Yalnizyan, economist and Atkinson Fellow on the Future of Workers
My chart to watch in 2025 is how (not if) the care economy expands. I combine two Statistics Canada industry sectors – health and social assistance, plus education – to see how the care economy has fit into the larger economy since 1976. Today, we want and need more paid services, but we don’t want to pay more. We treat care as a derivative function of the economy, perhaps because it was historically women’s work, or perhaps because it is largely publicly funded. But as COVID-19 reminded us, care is foundational to the functioning of the entire economy. It is a major driver of prosperity and growth.
The care economy is now the single biggest source of jobs for Canadians, clocking in at 21.2 per cent of all employment in November, 2024. Its contribution to gross domestic product has historically been more variable, increasing the most during recessionary times. But in recent years, it has been growing steadily in good times and bad, because of population aging and because there’s growing business interest in commercializing these services. These are trends worth caring about.
Cheap (but not so plentiful)
David Macdonald, senior economist, Canadian Centre for Policy Alternatives
One of the Liberal federal government’s signature measures was its national $10-a-day child-care plan. The massive reduction in child-care fees is already well under way, with a majority of provinces already at $10 a day and Ontario set to drop fees to $22 a day in January. All spaces should hit the average $10-a-day goal by March, 2026.
But getting a space remains a huge challenge for parents. The provinces and territories have committed to space-creation targets funded by federal dollars, and hitting their targets may make or break the program. Our proprietary database has been tracking every licensed child-care space in Canada. We’ve already seen more than 90,000 net new licensed spaces between 2021 and June, 2024 – less than the total promised by provinces and territories, but progress nonetheless. We’ll have to see what the second half of 2024 and all of 2025 hold for the program.
Electric shocker
Brian Kingston, CEO, Canadian Vehicle Manufacturers’ Association
Canada needs roughly 679,000 public electric vehicle charging ports (referred to as Electric Vehicle Supply Equipment – EVSE – ports) by 2040 to support the federally-mandated sales regulation requiring that 100 per cent of vehicles sold by 2035 be EVs. As of 2024, there were only 32,178 public ports available to drivers, well short of the projected need for 100,000 charging ports this year.
If Canada’s regulated EV sales targets are to be met, 40,000 public ports need to be installed, on average, each year from 2025 to 2040 at a cost of $18-billion. At the current rate of construction, there is no pathway to building the infrastructure required. The result: unattainable EV targets and frustrated drivers.