Debate around whether Canada is in a recession is likely to intensify in 2025 – unless data shows that economic slowdown to be undeniable.
Potential economic headwinds loom, such as the U.S. imposing tariffs on imports from Canada. That has the power to pummel the Canadian dollar and prompt significant job losses north of the border, according to economists.
A consequence could be the first technical recession since the first two quarters of the COVID-19 pandemic, in 2020.
Premier David Eby told media in December that if the tariffs materialize, “obviously, that would put our economy, as well as the Canadian economy, into recession.” He outlined his three-point plan for responding to tariffs in an op-ed in BIV.
Economists define a technical recession as being when a country’s gross domestic product declines in real terms for two consecutive quarters.
The most recent Statistics Canada data holds that the Canadian economy grew 2.1 per cent in the second quarter of 2024, and then grew at an annualized rate of one per cent in the year’s third quarter.
That economic growth would not have been possible without population growth.
Immigrants, temporary foreign workers and other newcomers saved the country from a technical recession by contributing to the economy and increasing GDP.
The country’s GDP growth per capita, however, has fallen in each of the past six quarters, according to Statistics Canada.
That sluggishness has made it feel to many that the country is already in a recession.
Real GDP declines could come in 2025 as Ottawa cuts back on how many new immigrants it is willing to welcome.
Prime Minister Justin Trudeau said in October that his government would reduce the number of new Canadian residents classed as “permanent residents” in 2025 to 395,000, down 21 per cent from a previous target of 500,000 people.
That would lower the overall spending bump created by new entrants, and it could be enough to tip the economy into a recession.
Some esteemed economic watchers have said that the country is essentially already in a recession. Former Bank of Canada governor Stephen Poloz said that in a webinar in December.
Central 1 Credit Union chief economist Bryan Yu told BIV that he anticipates the federal government to not be as aggressive as it has suggested in limiting the number of new permanent residents to Canada.
“It’s not cut and dried that it is a good policy to have all of our temporary residents leave the country,” he said.
“There are a lot of temporary residents who are people who went to school here, who are working in high-tech companies and life-sciences companies.”
Yu said many of those people are high-productivity workers.
As a result, he said he expects the government to create “carve-outs” in its policy to reduce the number of permanent residents and allow some of the high-productivity foreign workers to stay in the country.
Exactly what the government will do is in a state of flux.
A Liberal leadership campaign is underway with the winner set to become prime minister for what could be a very short tenure.
Opposition parties have promised to bring the government down and force an election.
That uncertainty casts doubt on a range of proposed government policies, including a controversial one to hike the tax on individuals who net more than $250,000 in a calendar year in capital gains. That change was announced last year but never passed in a bill in Parliament.
A change in government has the potential to reset the Canada-U.S. relationship.
Various wildcards could impact the economy.
It is possible that the H5N1 bird-flu virus could start rapidly spreading person-to-person, causing a pandemic. One B.C. teen was hospitalized with that disease last year but human-to-human transmission has yet to transpire.
On the positive side, 2025 may be the year corporate executives report on earnings calls that artificial intelligence has started to help their ventures operate with significantly improved efficiency.
