Recent readings show confidence among Canadian consumers and small businesses is softening as we close out the year. Despite the aggressive rate cuts from the Bank of Canada (BoC) since June, concerns about the economy and labour market persist. This is due in part to the threat of tariffs from the incoming US Presidential administration, which could hinder Canada’s economy.

• Canadian consumer confidence has fallen for nine straight weeks. The Bloomberg Nanos Canadian Confidence Index fell to 49.1 as of December 27 from 50.0 in the previous week. This marked the lowest level of Canadian consumer confidence since 2023.
• Canadians are concerned that the economy will not be stronger in the next six months. Concerns over the labour market and their own personal financial situations persist. While lower borrowing costs could help reignite spending and demand for real estate, the threat of high tariffs from the US weighs on the economic outlook.
• President-Elect Donald Trump has threatened to impose a 25% tariff on Canadian exports to the US, Canada’s largest trade partner. This could significantly impact Canada’s exports, which are a key component of its overall economic health.
• The threat of tariffs is also weighing on business optimism. The CFIB Business Barometer Index dropped to 56.4 in December from 59.8 in the previous month. Fewer firms have a positive view of the business environment.

Canada’s economy is a mixed bag at the current moment. While BoC rate cuts could reignite consumer and business spending, the threat of tariffs from Canada’s largest trade partner weighs on its economic outlook. Despite some historical periods of weakness, Canada’s economy has always recovered over time. Canada’s government has said it will be speaking with the incoming administration and is expected to negotiate countermeasures for the potential tariffs.

If you would like to discuss this economic and market update or have questions about your finances and investments, please feel free to contact me anytime.