As the New Year approaches, many set resolutions to adopt good lifestyle habits or learn a new skill. However, for those in the financial world, the end of the calendar year means it’s time to predict the economic landscape for the year ahead.
Like all hypotheses and guesses, future economic predictions contain a disclaimer that all statements are subject to change. After all, the market is volatile, relying on the ever-shifting landscape of our country’s industries, politics, and economics.
The past year has been quite the ride for the Canadian economy. We’ve watched interest rates trickle down and then suddenly drop. The TSX bank sector is currently up more than 27 per cent since this time last year, and per-capita domestic product declined for the sixth straight quarter in Q3.
In addition to these moving parts, Canadians have been struggling with the rising cost of living and being able to afford basic necessities. Even though inflation has been cooling down, its effects still impact every facet of day-to-day life. Nonetheless, inflationary decline, however slow as it may be, gives the Bank of Canada room to help boost growth in the coming months.
What does 2025 look like for you financially as a member of the economy? While market predictions should be taken with a grain of salt, having potential upcoming economic trends on your 2025 radar is important.
Let’s dive into financial economic trends to look out for in 2025.
Our Southern Neighbours
Given the global economy’s reliance on the U.S. economy, it would be irrational to neglect to speak about the election and its effects on the Canadian economy.
With the current tariff and trade proposals being presented, our economy needs to remain aware of the potential economic effects of these changes. Higher tariffs on Canadian goods would impact our exports and result in a decline in industries like manufacturing, agriculture and energy, leading to higher costs for Canadian businesses.
These big economic changes could mean that Canadians should look to adjust their spending habits towards more locally made products and small businesses to keep our economy circulating. It could also mean that investments should be diversified to balance your portfolio across various industries during trade disruptions.
Canadian Consumers “Interest-Rate Sensitive?”
Canada has been deemed one of the most interest-rate sensitive economies in the world due to our high household debt, particularly in the form of mortgages, and how quickly that debt turns over. On the bright side, interest rates are projected to decline into 2025, leaving Canadian consumers and their portfolios to adjust to this change with ease.
While interest rate shifts will provide ease, there is a time lag for these types of changes, and it will take a significant amount of time for Canadian households to feel its effects in the real economy.
With a little more breathing room, we may see a return in the Canadian consumer, but before we pour extra spending cash into big purchases, reducing debt that has been building up over the past few years may be a smart financial decision going into 2025.
Immigration Policy and Its Effects
In the last decade, real income per person, or the amount people earn adjusted for inflation, has trailed the U.S. A big reason for this difference can be attributed to Canada’s booming population. However, with recent policy changes, Canada is reducing immigration targets and if not already, our economy is going to react.
While aiming to reduce our unemployment rates, which stood at 6.5 per cent in September 2024, these changes give our job markets greater chances of stabilizing in the long run.
Strengthening an emergency fund during this time offers personal financial protection, helping individuals manage potential job disruptions and contributing to overall market strategy. Population changes could also mean an economic slowdown, so paying down high-interest debt would be a smart money move to provide you with financial flexibility throughout 2025.
While slowing population growth will relieve housing prices and rental demands, it could also lead to slower market activity. If you’re a homeowner with a variable-rate mortgage and can afford it, locking in your current rate could provide protection against economic downturns and potential future rate hikes.
Changing Rates
According to the Bank of Canada, inflation rates are projected to settle at 2% by mid-2025, easing business costs and opening up new investment opportunities.
When inflation rates do fall, it presents a great opportunity to pursue alternative investments like equities, inflation-protected assets and most importantly, real estate (historically, when inflation rates fall, so do mortgage rates). These alternative investments can ensure that your wealth grows realistically, helping you stay on track for your future goals, like retirement.
With 2025 on the horizon, staying informed and ahead of the curve is a pivotal way to keep your finances in check and prepared. There are many moving parts to our economy and having an expert on your side will allow you to keep up with continual market and economic changes.
Working with a professional at RaeLipskie can ensure that your portfolio remains steady and ready for anything that comes its way. Contact our team today to get started setting your 2025 financial goals – the informed way.
On behalf of the RaeLipskie team, we wish you and your finances a prosperous New Year. We look forward to continuing to collaborate with our loyal and honoured clients every step of the way.
