Canada Market Update: January 28, 2025
Written by Elliot Higgins, Analyst
Changes under Trump and Trudeau’s Exit
In this Canada Market Update for January 2025, we examine Canada’s economic conditions, including inflation and key market shifts as we enter the year. In December 2024, Canada’s annual inflation rate dropped to 1.8%, down from 1.9% in November. This marked the lowest point since September. The decrease was mainly due to a temporary Goods and Services Tax (GST) and Harmonized Sales Tax (HST) break introduced mid-month. This reduced prices on items like alcohol, restaurant meals, and children’s clothing. However, certain sectors, including housing and transportation, still faced price pressures, with shelter costs rising by 4.5%. Canada’s labor market showed strength, adding 91,000 jobs and lowering the unemployment rate to 6.7%.
Canadian banks have updated their projections, suggesting a pause in the rate-cutting cycle. However, further reductions are expected later in the year to stimulate economic activity. Bank of Canada Governor Tiff Macklem has indicated that any future cuts would be gradual. We await the BoC’s first interest rate announcement of 2025, scheduled for January 29th, for more insights into monetary policy.
Impact of Changes Under Trump and Trudeau’s Exit
On his inauguration day, President Donald Trump signed 20 executive orders. He also proposed steep tariffs on Canadian goods, which could deeply impact Canada’s economy and commercial real estate market. The U.S. is Canada’s largest trading partner, and reduced trade flows could affect industries like steel, aluminum, and automotive manufacturing. This would lead to job losses, higher business costs, and slower GDP growth. Canadian leaders have hinted at retaliatory measures, which could further strain cross-border trade and increase economic uncertainty.
The Canadian commercial real estate (CRE) market will feel the effects. Industrial markets may see reduced exports, while housing construction costs could rise due to tariffs on materials. The retail sector may experience tighter profit margins and reduced cross-border shopping. These economic pressures may prompt the Bank of Canada to continue its rate-cutting cycle, keeping Canadian bond yields low.
Uncertainty has increased with Prime Minister Justin Trudeau’s resignation as leader of the Liberal Party. Polls show a strong lead for the Conservative Party, with Pierre Poilievre likely to become the next Prime Minister. Trudeau’s resignation came after Deputy Prime Minister and Finance Minister Chrystia Freeland stepped down just before the scheduled release of the Fall Economic Statement.
We are closely monitoring key issues, such as Canada’s housing shortage, potential changes to the capital gains tax, and evolving immigration policy. These factors will likely impact the CRE market and influence transaction activity.
