Our economic outlook for Canada
June 25, 2025
Growth slows as trade and labor risks mount
“The Canadian economy remains under pressure amid trade tensions and a cooling labor market.”
Adam Schickling,
Vanguard Senior Economist
Although GDP surprised with 2.2% growth in the first quarter of 2025 due to tariff frontrunning from U.S. firms, Canada’s outlook is increasingly uncertain. We expect the doubling of U.S. tariffs on steel and aluminum imports from Canada, along with expanded U.S. measures targeting the auto sector, to weigh heavily on business investment, consumer spending, and employment.
Canada’s unemployment rate rose to 7% in May, and we anticipate it will reach 7.5% by year-end. Consumer and business sentiment has weakened, with firms delaying investment amid trade uncertainty. Despite starting the year with a 1.7% GDP forecast for 2025, we now expect growth of just 1.25%, with risks tilted to the downside.
The Bank of Canada (BoC) held its policy rate at 2.75% at its June meeting, citing persistent uncertainty around U.S. trade policy and the mixed economic signals at home, including firmer-than-expected core inflation and a softening labor market. Given these growth headwinds, we anticipate that the BoC will resume easing later this year, cutting the overnight rate to 2.25% by year-end.
Canada economic forecasts
Notes: GDP growth is defined as the annual change in real (inflation-adjusted) GDP in the forecast year compared with the previous year. Unemployment rate is as of December 2025. Core inflation is the year-over-year change in the Consumer Price Index, excluding volatile food and energy prices, as of December 2025. Monetary policy is the Bank of Canada’s year-end target for the overnight rate.
Source: Vanguard.
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