Uncertainty expected to slow growth in first half

2025 will likely be a mixed bag for Canada’s economy, predicts Benjamin Tal, deputy chief economist at CIBC.

Speaking on the Advisor To Go podcast, Tal said the coming year could prove to be a “tale of two halves” with a slow start and, potentially, a decline in GDP per capita followed by improvements in the latter half as interest rates drop.

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“We don’t see the economy growing in any significant way until the middle of 2025,” he said. “In the second half of the year … the magic of low interest rates will start working, impacting the consumer and businesses.”

Tal said the Bank of Canada will likely continue cutting rates, bringing them down to 2.25% or even 2% by late 2025. Inflation, which has stabilized near the 2% target, should no longer constrain monetary policy. 

“Inflation at this point is irrelevant,” Tal said. “We’ve basically won the war against inflation.”

Despite that progress, however, Canada’s monetary policy will continue to be informed by the approach taken by the U.S. Federal Reserve. 

“The Bank of Canada cannot divorce itself from the Fed for a long duration,” Tal said, adding that the Fed is expected to continue to cut rates this year, but at a slower pace than Canada.

Political developments, both in Canada and the U.S., will also impact the economy, he said. Trade policies expected to be introduced by the Trump administration could add volatility to global markets.

“When it comes to Trump, the goal is uncertainty, and the tool is chaos,” he said.

In Canada, Prime Minister Justin Trudeau’s resignation and an expected federal election will add another layer of unpredictability. Tal said he anticipates a majority Conservative government later this year, but isn’t expecting significant changes to economic policy in the short term.

“The election will introduce uncertainty, but it’s unlikely to be a game-changer,” he said.

As for Canada’s housing market, Tal noted a number of contrasting trends.

Detached homes and other low-rise housing are expected to remain stable but the condo market is facing serious challenges. Condo sales are down, pre-construction activity has stalled and many investors are seeing losses, leading to a lack of demand. 

“Pre-sell activity is basically dead,” Tal said. “Developers cannot make money, and therefore they are not building.”

The challenges could prove to be short-term, however, as interest rates fall and demand builds. “This is a buyer’s market for condos,” he said. “In a year or two, there will not be enough supply. Demand will rise, and we’ll see prices rising again.”

Tal said the most significant price declines in condo markets will be in Toronto and Vancouver, where prices have been high for years. Alberta’s housing market, on the other hand, is likely to remain stable due to strong demand and limited supply. Eastern Canada, which has experienced years of rapid growth, is expected to see a slight cooling in housing activity.

“It’s a location-location-location story,” Tal said. 

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.