Thunder Bay – Business – Canada’s economy showed lackluster performance in the third quarter of 2024, with real GDP growing by just 1.0% on an annualized basis. This rate, slightly below the 1.5% forecast by the Bank of Canada, reflects an economy struggling to reach its potential.
Growth was buoyed by government and consumer spending, which managed to offset declines in business investment and international trade. However, the underlying picture is troubling, as real GDP per capita fell for the sixth consecutive quarter, a clear signal that economic activity is not keeping pace with population growth.
Potential Tariffs: A Major Threat
Adding to the uncertainty is the election of Donald Trump as President of the United States, whose administration is threatening to impose a 25% across-the-board tariff on Canadian goods. This move would have significant ramifications for Canada’s export-dependent economy, potentially impacting key sectors like manufacturing, agriculture, and natural resources.
Trade between Canada and the U.S. accounts for approximately 75% of Canada’s total exports, making the potential tariffs a severe blow to business confidence and cross-border investment. The tariff threat comes at a time when international trade is already contributing less to economic growth, further dampening hopes for recovery in 2025.
Immigration and Labor Market Concerns
Another challenge on the horizon is the prospect of reduced immigration targets, which could exacerbate labor shortages and hinder economic expansion. Immigration has been a key driver of population growth and domestic demand in Canada, particularly in sectors like healthcare and technology that rely on skilled newcomers.
A slowdown in immigration would likely compound the effects of declining business investment and weak international trade, leaving the economy with fewer growth engines heading into the new year.
Interest Rates: The Bank of Canada’s Role
In this uncertain climate, calls for monetary policy easing are growing. Stephen Tapp, Chief Economist at the Canadian Chamber of Commerce, has advocated for a 50-basis point cut in interest rates to support economic activity. With inflation largely under control, there is room for the Bank of Canada to shift its focus toward boosting investment and consumer spending.
Lower rates could provide much-needed relief to businesses facing rising costs and limited opportunities for growth. However, the effectiveness of such a move depends on whether it can offset the negative shocks of tariffs and weaker immigration inflows.
Outlook for 2025
As Canada looks ahead to 2025, the economic outlook is fraught with challenges. While government spending and consumer resilience have provided a cushion, sustained growth will require stronger contributions from business investment and international trade. Policymakers will need to navigate the dual threats of U.S. protectionism and domestic policy changes to maintain economic stability.
For Thunder Bay and Northwestern Ontario, these developments could have ripple effects, especially in export-dependent industries like forestry and mining. Local businesses should prepare for potential disruptions and explore diversification opportunities to mitigate risks.
