As the new year begins, economists are weighing how fast Canada can cool inflation without tipping into a deeper slump. Randall Bartlett, deputy chief economist at Desjardins Group, is among those tracking signs that households and businesses are moving from restraint to cautious planning. The question is whether interest-rate relief and a calmer inflation trend will be enough to lift growth while keeping prices in check.
Canadians head into 2025 with slower growth, softer job gains, and high borrowing costs still working through the system. The Bank of Canada has shifted to an easing bias while warning that progress on inflation could be uneven. That tension will shape decisions from mortgage holders to manufacturers in the months ahead.
Inflation and Interest Rates
Inflation has fallen well off its 2022 peak, but price pressures remain sticky in services and shelter. Central bankers are trying to balance steady disinflation with the risk of cutting rates too soon. Bartlett’s outlook focuses on how quickly rate cuts filter through to household budgets and business investment.
Mortgage renewals are central to that timing. Many borrowers will reset at higher rates this year, which could restrain spending even if policy rates move lower. Analysts expect rate cuts to continue at a careful pace, dependent on monthly price and wage data.
Housing and Household Finances
Housing affordability remains strained, especially in major cities. Supply is expanding, but construction faces labor shortages and higher financing costs. Any easing in mortgage rates could stabilize resale activity, yet new supply will take time to reach the market.
Household savings built during the pandemic have thinned. Credit card balances have risen, and delinquency rates ticked up in late 2024. Bartlett and peers are watching whether lower rates and moderating inflation help households rebuild a cushion, which would support retail sales later in the year.
Jobs, Wages, and Productivity
Job growth has cooled from earlier highs, and the unemployment rate edged up through 2024. Wage gains have slowed but remain positive in several service industries. The gap between wage growth and inflation has narrowed, easing pressure on household budgets.
Canada’s long-running productivity challenge remains a drag on potential growth. Business investment in machinery, technology, and training is a key concern for economists. Bartlett highlights that durable gains in living standards depend on better productivity rather than on population growth alone.
Trade, Energy, and Regional Trends
Canada’s export outlook is tied closely to the United States. A soft landing stateside would help factories and resource producers. A sharper U.S. slowdown would weigh on shipments of autos, machinery, and consumer goods.
Energy investment has stabilized, with producers prioritizing balance sheets and selective growth projects. Western provinces could benefit if global demand holds and transportation bottlenecks ease. Meanwhile, central and eastern regions face varied conditions, with manufacturing, services, and housing each pulling in different directions.
Fiscal Policy and Business Confidence
Federal and provincial budgets aim to support housing and productivity while managing deficits. Spending priorities include infrastructure, skills training, and incentives for clean technology. The timing and execution of these plans will influence private investment.
Business surveys show cautious sentiment, though order books improved late last year in select sectors. Firms remain careful on hiring and capital spending until rate paths and demand become clearer. A steadier policy backdrop would help confidence.
Risks and What to Watch
Economists point to several near-term risks and supports that could shift the outlook:
- Inflation progress stalls if shelter and services stay hot.
- Faster rate cuts lift housing but reignite price pressures.
- U.S. growth slows more than expected, hurting exports.
- Productivity improves with targeted investment and policy clarity.
- Population growth eases, taking pressure off rents and services.
The Bottom Line
Bartlett’s reading of the data suggests a careful handoff from rate restraint to gradual recovery. The first half of 2025 may feel slow as higher borrowing costs continue to filter through renewals and business plans. The second half could see firmer momentum if inflation keeps cooling and rate cuts persist.
For households, the key is relief on shelter costs and steady jobs. For businesses, the focus is on clearer demand signals and incentives to invest. For policymakers, the task is to nudge supply, boost productivity, and keep inflation on a downward path.
Canada’s path hinges on execution and patience. Watch monthly inflation, wage growth, and housing data for the earliest signs of a turn. A soft landing is still possible, but it will require steady progress and a few good breaks.
