Durrant Pate/Contributor
The 2025 economic growth forecast for Canada has been revised upwards by Fitch Connect, reflecting a better-than-expected economic performance in the first quarter of 2025 and stronger projected growth in the United States.
Fitch is now projecting that the Canadian economy will expand by 1.4% in 2025, an increase from the prior projection of 1.2%. As a major exporter to the US, with exports constituting approximately 21% of its gross domestic product (GDP) in 2025, Canada faces upside economic risks from stronger US growth.
However, the risks to the growth forecasts remain tilted to the downside, with Fitch citing that uncertainty in labour market dynamics may prompt households to bolster savings. A survey by the Bank of Canada (BoC) revealed that consumers’ expectations of the likelihood of job loss within the next 12 months surged from 13.0% in Q4 2024 to 20.7% in Q1 2025, the highest level ever recorded.
Business confidence surveys are also a reason why Fitch believes growth risks remain on the downside. The surveys continue to indicate a broad-based decline in confidence regarding the future business environment in Q1 2025.
Meanwhile, private sector activity contracted for the fifth consecutive month in April, with preliminary data for May indicating a sixth month of decline. The composite Purchasing Managers’ Index fell to 41.7 in April from 42 in March.
According to Fitch, US President Donald Trump’s proposed policies could also trigger a fresh wave of inflation. If this occurs, the BoC might be compelled to either slow down its easing cycles or raise interest rates outright to combat inflation, which would negatively impact consumer spending and corporate investment.
The Royal Bank of Canada estimates that approximately 2.4 million Canadian jobs are linked to sectors reliant on U.S. exports, representing 12% of the nation’s total workforce. This underscores the risks of a weakening labour market.
Nonetheless, provided there are no tariff-induced inflationary shocks for the remainder of 2025, Fitch has assessed that the easing inflation will grant the BoC the flexibility to continue reducing interest rates in the upcoming quarters.
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