with Michael Feuz

EXAMINING CANADA'S ECONOMIC OUTLOOK FOR 2025

This week on TrendsTalk, ITR Economist Michael Feuz highlights Canada’s economic outlook for 2025 along with several key indicators and their implications for the economy. Is Canada well-positioned for economic growth in 2025? Tune in to find out!

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Michael Feuz

MEET YOUR HOST

Michael Feuz

Michael Feuz is a key member of ITR Economics’ team of expert economists and consultants. Backed by a decade of experience working for technology start-ups, he contributes to the production of client reports, forecast reviews, economic research, and regular client-facing communications.

“Join me on the TrendsTalk podcast to explore the world of economics. Episodes offer insightful discussion and expert interviews. We cover relevant economic concepts in an accessible way. Whether you are a curious layperson or an industry professional, TrendsTalk is your go-to source for thought-provoking analysis and a deeper understanding of the economic forces shaping our world.”

Key Episode Takeaways

  • 0:07 – Highlighting Canada’s economic outlook for 2025
  • 0:50 – Canada’s Industrial Production and growth expectations
  • 1:55 – Reviewing inflation and interest rate outlook
  • 2:58 – Analysis of Canadian consumer indicators
  • 5:27 – Canada’s retail sales data
  • 6:55 – Final thoughts on Canada’s 2025 economic outlook
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The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.

Hello, everyone. I’m Michael Feuz, economist and speaker here at ITR Economics. I’m filling in this week for Taylor St. Germain. Welcome to another episode of TrendsTalk.

If you remember, maybe a few weeks back, Taylor spoke to you all about the outlook for the overall US economy in 2025, especially following the election. So today, kind of springboarding off of that topic, I want to talk to you about Canada, our neighbors to the north. Look at what our expectations are for 2025. Take a look at the consumer and how all this informs our expectations for next year.

With that, heading into 2025, we expect Canada to move from recovery into a growth phase in the economy. This is based off Canada Industrial Production, which currently sits 0.6% below year ago levels, but in that phase a recovery and by at some point in the first, we expect by the first half of next year to transition into growth. This moves very similarly to the US. We’re intimately connected to Canada, as you can imagine, and overall next year in Canada Industrial Production, we’re forecasting 3.3% growth overall. So moving from recovery, as we kind of round out this year and probably the early part of next year and then transition into that growth and seeing overall growth in Canada’s Industrial Production.

I want to take a look here at inflation in Canada. It’s currently So we’re looking at the CPI, that consumer price index in Canada. Again, this moves very similar to the US as you probably could guess. It’s currently at about 1.9%. So in a disinflation phase and sitting below where the US is, US is currently at 2.5%. This is on a 3/12 rate of change basis. Additionally, the Bank of Canada is forecasting further rate cuts in 2025. So combining our outlook for likely further disinflation into at least the first half of next year and lower rate cuts, this helps inform and will yield more confident consumer and businesses amid higher economic growth, thinking more growth, lower inflation, lower interest rates will just help yield more confidence in a faster growing economy.

Now, Let’s look at a few of the leading indicators specifically focused around the consumer. I want to start at Canada household income deflated. We economists would call this real income because we’re removing the impact of inflation and it answers that question, how’s the consumer doing regarding inflation? And looking at Canada real income both including and excluding government transfer seats or government checks we’re seeing a rising trend. This suggests that the consumer in Canada is generally well positioned to deal with the financial headwinds that remain and help drive economic growth.

Now let’s look at a few of the delinquencies and see what’s going on there. Specifically what I want to look at is auto delinquency, credit card delinquency, and mortgage rate delinquency. So let’s start with the mortgage rate delinquencies. That monthly rate is at 0.2% which is low and sits below the historic average of 0.25%. Now we’re seeing a slight rising trend in both the 3/12 and 12/12 but it remains at a very healthy level. People are able to and are making those mortgage payments.

Credit card delinquency on a monthly basis is at 1.7%. This is moderately high, maybe you want to put it that way. It’s above the historic average of 1.38% but it’s not at a level that’s overly concerning. It suggests the consumer is certainly leveraging their credit cards more amid some of the financial headwinds but generally still reflects that we have a resilient Canadian consumer.

Now the auto loan delinquency in Canada, that’s at a 2.42 percent, which is high compared to that five-year, compared to the five-year average, which is about 1.83 percent. This one’s certainly concerning. It’s been above two percent for most of 2024, and it is reflecting some of the pressure that the consumer is facing in Canada.

Lastly, I want to look at Canada retail sales. Retail sales is a great series to look at because it kind of just gives you a snapshot of what’s the consumer up to. Canada retail sales tells a pretty similar story to U.S. retail sales. We have a consumer that is still spending, but signs of softness in consumer spending are are also in the data. So Canada retail sales on a 12 month moving total, that 12 MMT is at 797.3 billion dollars. The 12/12 rate of change is at 1.2% and that’s been trending generally flat for most of this year. Now the 3/12 rate of change remains below the 12/12 at 1%. This also, this is what’s suggesting a little of that near term softness in the consumer. If we deflate retail sales, that 12/12 and 3/12 would tick slightly below the zero line. Go just a little bit negative. This is suggesting also that softness in the consumer. It’s saying they’re putting a little less in the shopping cart per se, but still willing to pay more nominally for what they are purchasing.

With disinflation likely to continue into the first half of 2025, further interest rate cuts projected and a generally well positioned consumer, all of this suggests and inform our expectation for recovering growth in the overall Canadian economy in 2025.

So I’ll leave it there. Again, I’m Michael Feuz, economist and speaker here at ITR Economics, filling in for Taylor St. Germain. Thank you for joining me on this week’s TrendsTalk. I look forward to speaking to you again soon.