Bank cuts interest rates again as uncertainty remains

This morning, the Bank of Canada reduced its target for the overnight rate to 3%. The Bank also said it was ending quantitative tightening, starting gradually in early March.

Economic projections are more fuzzy now than they typically are because of the shifting political landscape, particularly the threat of US tariffs.

“With inflation around 2% and the economy in excess supply, Governing Council decided to reduce the policy rate a further 25 basis points to 3%. The cumulative reduction in the policy rate since last June is substantial. Lower interest rates are boosting household spending and, in the outlook published today, the economy is expected to strengthen gradually and inflation to stay close to target,” the Bank stated. “However, if broad-based and significant tariffs were imposed, the resilience of Canada’s economy would be tested. We will be following developments closely and assessing the implications for economic activity, inflation and monetary policy in Canada. The Bank is committed to maintaining price stability for Canadians.”

Chamber network working behind scenes to help Canada

It’s said that no one wins a tariff war, and with so much uncertainty about what newly anointed US President Donald Trump might do to pressure Canadians economically, the Chamber’s national network is proactively working to build allies where it counts.

This week, the Canadian Chamber was in Washington, DC, during the US inauguration. The Chamber spoke with US decisionmakers to ensure they understand the risks posed by tariffs.

Through direct engagement with key partners, the Canadian chamber made the case that imposing tariffs doesn’t strengthen economies but weakens them by driving up costs, disrupting cross-border trade, and putting millions of jobs at risk on both sides of the border.

Tariffs would act as a tax on US families and businesses, and hurt the US economy.

“Instead, we called for collaborative solutions to grow our $1.3 trillion annual trade relationship and protect the millions of jobs it supports,” the Chamber said. “Beyond this week, our advocacy continues at full speed. We’re championing policies to remove barriers, diversify trading partners, and prepare Canada for potential economic impacts.”

Eight predictions for Canada’s economy in 2025

No one knows what the future holds, but that doesn’t mean we can’t take a shot at forecasting what’s to come. Here, with the help of the Canadian Chamber’s Business Data Lab, are Chief Economist Stephen Tapp’s eight predictions for the economy. Note that the following list is edited and condensed for space. Read the full article here.

1. Affordability will remain a key consumer and political concern

A big story in 2024 was that inflation was tamed faster than expected — the “soft-ish landing” few economists thought possible. But there are no victory parties planned. Prices are up almost 16% since 2020, and even more, for some essential items such as food and shelter. Politicians will keep searching for policy solutions ahead of the upcoming federal election.

2. Work stoppages will remain elevated

Take rising unit labour costs for businesses, add in workers’ anxieties about affordability and automation, and the result has been a huge increase in work stoppages over the past two years. The last time we had this many work stoppages was almost 40 years ago. Expect this trend to continue in 2025.

3. Immigration will slow down, but the government won’t hit its 2025 target

After pandemic lockdowns lifted, Canada significantly increased immigration, led by non-permanent residents. After a policy U-turn last year, Canada’s population growth is on track to go into reverse in 2025, causing a significant drag on headline economic growth. I would be surprised if, in an election year, the government hits the ambitious target to slow immigration this much, this fast.

4. Trump will weaponize uncertainty and impose tariffs on Canada’s exports

My base case for 2025 is that Trump will impose tariffs on Canadian exports, almost immediately after his inauguration. Our BDL modelling suggests such a move would be disastrous for North America’s economy. However, looking further down the road, I have much more conviction that the economic ties that bind us together will be strong enough that ultimately a trilateral North American trade pact will continue after Trump’s second term ends.

5. Bank of Canada will continue cutting rates and the dollar will depreciate further

The Bank cut rates at its last five meetings of 2024, bringing its policy rate down from 5% to 3.25%. Financial markets have priced in a few more rate cuts, bottoming out around 2.6%. If the tariff threat is realized, short-term Canadian interest rates need to go much lower to support activity. Given a diverging outlook for monetary policy relative to the US, the Canadian dollar would have further to fall, which will partially cushion the blow, but that will raise import prices and make Canadians rethink their travel plans to the US this year.

6. Canadian trade will initially outperform expectations

The unfortunate experience of steel and aluminum tariffs in Trump’s first term offer some guidance. There was an initial period when businesses “stockpiled” inventories before the tariffs came into force. We expect a similar dynamic this time around.

As such, I expect Canadian exports to outperform expectations, at least very early in 2025, as US importers rush to avoid potential tariffs.

7. Housing prices will rise again

With lower borrowing costs, combined with new mortgage rules to extend amortizations, along with the painfully slow process to raise housing supply, I expect average home prices in Canada to rise in 2025, causing more concern for first-time home buyers. New record highs in the next few years shouldn’t be ruled out.

8. Canadian productivity will be less awful

I’ll end with a mildly optimistic outlook for Canada’s productivity.

Canadians are working harder, not smarter. We’re putting in more hours. Unfortunately, output growth isn’t keeping pace. The result is less output produced per hour. Here’s hoping that this year, with lower borrowing costs, businesses and workers will ambitiously invest in new technologies to uncover better, faster and cheaper ways to create value. It’s desperately needed and something everyone can raise a glass to!

Beyond the news headlines, $3.6B in Canada/US trade

It’s hard to have a conversation these days that doesn’t veer into Canada/US relations. Looking past the political chirps, here are some of the numbers behind what’s at stake for business.

The Chamber’s national network has introduced the Canada-U.S. Trade Tracker — to illustrate the ties between our two economies.

“The stakes couldn’t be higher,” Canadian Chamber President and CEO Candace Laing said. “Tariffs and trade barriers jeopardize jobs, industries and families across both sides of the border. The Canada-U.S. Trade Tracker gives us the tools to push back with facts, showing just how much we all stand to lose when imposing taxes on prosperity.”

Every day, $3.6 billion in goods crosses the Canada-U.S. border, fueling a $1.3 trillion annual trade relationship. This partnership supports:

  • 1.4 million US jobs tied to Canadian exports.
  • 2.3 million Canadian jobs tied to US exports.
  • 50% of bilateral goods trade between related companies, underscoring the depth of integration between our economies.

A 25% tariff could shrink Canada’s GDP by 2.6%, costing Canadian households an average of $1,900 annually. For the US, this would mean a 1.6% GDP drop, with families losing $1,300 per year. Beyond the economic impact, tariffs would disrupt industries like automotive, agriculture, and energy, making everything from groceries to cars more expensive.

New era set to begin as Trudeau says he’ll step down

There has been a seismic shift in the political landscape to start the new year. Earlier this week, Prime Minister Justin Trudeau announced he will step down as soon as his successor is in place.

Canadian Chamber President and CEO Candace Laing issued a statement saying it was the right move, and Canada must now harness our entrepreneurial spirit to boost our lagging productivity and deliver on the priorities that matter to Canadians.

“His resignation marks a turning point as Canada tackles unprecedented domestic and international challenges. Canada can’t afford inaction with so much at stake,” Laing said. “Unity is key: political leaders, businesses, and communities must come together around our common opportunities. Canada’s next Prime Minister must hit the ground running and be laser-focused on strengthening the Canada-U.S. trade relationship.”

Speaking on CFAX, Greater Victoria Chamber CEO Bruce Williams said the focus will now switch to who will become the next leader of the federal Liberal Party. Among the front runners are former Bank of Canada governor Mark Carney and former BC Premier Christy Clark.

The Chamber and our national network will continue to call on the federal government to end wasteful spending and over-taxation and do a better job of helping Canadians build a better life for themselves and each other.

Trump takes to social media to threaten huge tariffs

There’s the economy, and then there’s the attention economy. The incoming US President has seized the spotlight with his comments on his Truth Social platform calling for a 25% tariff on products from Canada.

The damage such a move would do to the Canadian and US economies makes this pronouncement shocking, which is likely what Donald Trump intended.

Chamber Board Chair Kris Wirk spoke to CFAX this morning about the issue, noting that the uncertainty is not helpful regardless of whether any tariffs are introduced.

Chamber CEO Bruce Williams said it’s easy for Trump to be loud on social media, but there has already been a tremendous amount of work behind the scenes to mitigate the damage tariffs would cause.

“We need to remember that this is a public relations tactic and probably much different than what will occur in reality,” Williams said. “Our national Chamber network has built strong relationships with states along Canada’s border. Their leaders understand the trade relationship with Canada and its importance to American jobs, factories and consumers. They’ll bring a strong voice to any negotiations.”

Speaking of the Canadian Chamber, new President and CEO Candace Laing has issued a statement condemning any attempt to hurt Canada’s economy.

“Being America’s ‘nice neighbour’ won’t get us anywhere in this situation. President-elect Trump’s intention to impose 25% tariffs signals that the U.S.-Canada trade relationship is no longer about mutual benefit. To him, it’s about winners and losers—with Canada on the losing end,” Laing said. “We’re facing a significant shift in the relationship between long-standing allies. Canada’s signature approach needs to evolve: we must be prepared to take a couple of punches if we’re going to stake out our position. It’s time to trade ‘sorry’ for ‘sorry, not sorry.’”

Bomb cyclone provides reminder to be prepared

The bomb cyclone that swept through the region this week served as a good reminder to prepare for potential emergencies before winter. Coincidentally, so did the National Public Alerting System‘s test today (Nov. 20), which buzzed phones at 1:55 p.m.

You can prepare by making sure you have a plan for your business and your home, and that everyone knows what to do and where to find emergency kits. These should include non-perishable food, water and supplies to be self-sufficient for up to one week.

After a disaster-level event, your insurance provider can give you guidance on best practices for cleaning up and repairing damage.

In 2025, The Chamber plans to work with members, specifically smaller businesses, to help them build a crisis communication strategy. This will be a straightforward guide that can be consulted to help ensure you are prepared to communicate with internal and external stakeholders after an emergency. To learn more and help us develop this initiative, email communications@victoriachamber.ca.

Keeping an eye on AI to help business adopt it safely

The adoption of artificial intelligence into our daily routine has been profound. Maybe you use ChatGPT to build out tedious frameworks for standard documents or use Canva to create spectacular illustrated designs for marketing. The ease of integrating AI into our workflows makes it impossible to ignore. However, what price are we paying for these conveniences? The threats of AI are still vague. From lost income opportunities to humanity’s demise, there’s a massive gamut of possibilities.

A new organization was announced today to help Canada stay ahead of the AI revolution. The Canadian Artificial Intelligence Safety Institute has a $50 million budget over five years to help Canadians reap the benefits from AI while fighting misuses such as disinformation campaigns, cybersecurity breaches and election interference.

The Chamber will work to keep members apprised of the positives and potential negatives of AI. The national Chamber network’s Future of Artificial Intelligence Council works directly with government to advocate on behalf of business to profoundly increase economic productivity and growth.

Feds step in to end labour disputes at Canadian ports

The Chamber was part of advocacy efforts that succeeded in ending the recent labour disputes that had shut down vital ports across Canada.

The Chamber was a signatory to a letter that went directly to federal Minister of Labour and Seniors Steven MacKinnon. That effort helped push the Canada Industrial Relations Board to announce on Tuesday that it will impose final binding arbitration to resolve labour disputes at ports in British Columbia, Montreal and Quebec.

This decision will swiftly end disruptions and resume port operations, while extending current collective agreements until new ones are finalized.

“As an Island economy, we need our supply chains to operate efficiently,” Chamber CEO Bruce Williams said. “Any disruptions can have critical impacts on businesses ability to plan with certainty.”

Supersized interest rate cut aims to spur economy

Does today’s news from the Bank of Canada mark the start of better times? Maybe.

There is certainly plenty of buzz surrounding this morning’s announcement that the policy interest rate has been cut by 0.5% to stand at 3.75%. It’s the biggest drop since 2020, back when the bank needed to reassure an economy frozen by fear in the early days of the pandemic.

To better understand today’s situation, the following post by RBC is helpful. Cutting Through Interest Rate Chatter: What Interest Rate Changes Really Mean for You offers a few ways to think about today’s news. The cut has potentially created a “sweet spot” for first-time home buyers. As more people decide the time is right to list their house, buyers might be able to take advantage of a lag in prices before they return to previous levels.

Today’s rate cut is also welcome news for homeowners needing to renew mortgages. The landscape looks much better than it did before the Bank started its series of four straight rate cuts. Variable mortgage holders will also feel immediate relief with more money staying in their pockets or going toward their mortgage’s principal.

And best of all, more rate cuts appear to be on the horizon. According to the Bank of Canada’s Governing Council, it will continue to lower the rate if the economy stays on its expected path.