Unpacking the Latest News in Canada's Economy: What You Need to Know Now

Canada's economy is a dynamic and ever-evolving landscape, constantly shaped by global events, domestic policies, and the daily decisions of millions of Canadians. In a world where economic shifts can impact everything from your grocery bill to your mortgage payments, staying informed isn't just a good idea—it's essential. Are you wondering how the latest economic trends might affect your personal finances or business? This comprehensive guide will break down the most recent developments in Canada's economy, offering clear insights into what's happening and what it could mean for you.

Understanding Canada's Economic Landscape Today

The Canadian economy has shown a mix of resilience and challenges in recent months. Gross Domestic Product (GDP) saw an expansion of 0.50% in the first quarter of 2025 over the previous quarter, following a 0.6% rise in the final three months of 2024. In the second quarter of 2025, real GDP grew at an annualized rate of 2.1%, primarily supported by government spending, business investment, and household spending on services. However, despite these gains, per-capita output has continued to decline for several consecutive quarters, indicating that economic growth isn't keeping pace with population growth on an individual level.

The country's economy is highly diversified, with foreign trade accounting for approximately 45% of its GDP, and the United States remaining its largest trade partner. Recent reports suggest that despite ongoing trade tensions and tariffs from the U.S., Canada's economy is demonstrating some resilience, though cracks are beginning to show.

Inflation and the Cost of Living: A Persistent Challenge

Inflation has been a significant concern for Canadians, impacting household budgets across the country. The annual Consumer Price Index (CPI) inflation rate stood at 1.9% in June 2025, remaining below the Bank of Canada's 2% target for the second consecutive month. This follows rates of 1.7% in April and May 2025.

While overall price growth has cooled from its peak, certain areas continue to exert pressure:

• Shelter Costs: These remain elevated, with rent costs up 8.9% in May 2025, and the mortgage interest cost index also contributing to high shelter inflation.
• Grocery Prices: Although the growth rate for food purchased from stores was lower in 2024 (+2.2%) compared to 2023 (+7.8%), prices for groceries remain elevated.

Canadian consumers are feeling the financial strain, with a significant portion reporting a worse financial position compared to a year ago. This has led many to adopt a cautious approach to spending, prioritizing essentials and cutting back on discretionary items.

Interest Rates and Their Impact on Borrowers

The Bank of Canada (BoC) plays a crucial role in managing inflation through its policy interest rate. As of July 2025, the Bank of Canada held its policy rate steady at 2.75%. This decision followed a series of rate cuts between June 2024 and March 2025, which saw the benchmark rate reduced from a peak of 5%. The next scheduled interest rate announcement from the Bank of Canada is September 17, 2025.

What does this mean for you?

• Variable-Rate Mortgages: If you have a variable-rate mortgage, changes in the BoC's policy rate directly influence your payments, as these mortgages are tied to a lender's prime rate, which currently stands at 4.95% as of August 7, 2025.
• Borrowing Costs: The BoC's rate adjustments directly affect borrowing costs across the economy, impacting everything from personal loans to business investments.

The Bank of Canada has indicated that it will continue to monitor economic conditions closely, with a focus on inflation, noting that a weakening economy could lead to further rate reductions if inflationary pressures from trade disruptions are contained.

The Canadian Job Market: Resilience Amidst Shifts

The Canadian job market has experienced fluctuations, showing both resilience and areas of concern. In July 2025, the Canadian economy shed 41,000 jobs, partially offsetting an unexpected gain of 83,000 positions in June. The unemployment rate remained steady at 6.9% in July 2025, a multi-year high.

Key trends in the labour market include:

• Youth Employment Struggles: Young people aged 15 to 24 have been particularly affected, with their employment rate dropping to its lowest since November 1998 (excluding the pandemic).
• Full-time Job Losses: The decline in July was largely driven by a loss of 51,000 full-time positions, primarily in the private sector.
• Long-Term Unemployment: The share of long-term unemployment (those jobless for 27 weeks or more) reached its highest level since February 1998, excluding the pandemic period.
• Sectoral Shifts: While some sectors, particularly those sensitive to tariffs like manufacturing, have seen job losses, others like transportation and warehousing experienced gains in July. Public sector jobs, such as healthcare and education, continue to be in high demand.

Despite these challenges, average hourly wages in July 2025 rose by 3.3% on an annual basis.

Navigating the Housing Market: A National Conversation

Canada's housing market continues to be a hot topic, characterized by regional disparities and ongoing affordability challenges. The market saw a mixed finish to 2024, with resale transactions falling in major cities like Calgary and Toronto towards the end of the year. However, markets in Vancouver, the Fraser Valley, Edmonton, and Montreal showed signs of recovery or sustained momentum.

Looking ahead:

• Sales Recovery: Experts anticipate that as mortgage rates and economic uncertainty decrease in the latter half of 2024 and into 2025, buyers will gradually return to the market. National home sales were up 10% in the last quarter of 2024 compared to the third quarter.
• Affordability Challenges: Despite a projected recovery in sales, housing is expected to remain expensive for the average household. Strained affordability conditions and potential cuts to immigration could restrain the pace of recovery.
• Rental Market: Strong population growth, particularly from newcomers who tend to rent, is expected to keep rental markets tight across Canada. While purpose-built rental completions are increasing, they are unlikely to meet the growing demand.

Consumer Spending: A Cautious Approach

Canadian consumers have adopted a more cautious approach to spending in recent months. Data from the second quarter of 2025 suggests that consumers tightened their purse strings, with overall spending growth slowing significantly compared to the first quarter. This reflects a growing softness in underlying economic conditions and a weakening labour market.

Canadians are cutting back on discretionary expenses such as dining out, clothing, and travel, and are increasingly turning to discount retailers and private label brands to maximize value. This cautious behaviour is a direct response to persistent inflation and concerns about economic uncertainty.

Conclusion

The latest news in Canada's economy paints a picture of an economy in transition. While GDP shows signs of growth, particularly driven by government spending and household consumption, challenges persist in per-capita output, the job market, and housing affordability. Inflation, while cooling, continues to be a factor influencing consumer behaviour and the Bank of Canada's monetary policy decisions.

Staying informed about these key economic indicators is vital for making sound personal and financial decisions. The economic landscape is always shifting, and understanding these movements can help you navigate the future with greater confidence.

Frequently Asked Questions

What is the current inflation rate in Canada?

As of June 2025, the annual Consumer Price Index (CPI) inflation rate in Canada was 1.9%. This rate has remained below the Bank of Canada's 2% target for the second consecutive month.

What is the Bank of Canada's current interest rate?

The Bank of Canada held its policy interest rate steady at 2.75% in July 2025. The next scheduled announcement is in September 2025.

How is the Canadian job market performing?

The Canadian economy shed 41,000 jobs in July 2025, partially offsetting a gain from June. The unemployment rate remained at 6.9% in July 2025, which is a multi-year high. Youth employment and full-time positions in the private sector have been particularly impacted.

What is the outlook for the Canadian housing market?

The Canadian housing market is expected to see a gradual recovery in sales in 2025 and 2026 as mortgage rates and economic uncertainty decrease. However, affordability will likely remain a challenge, and the rental market is expected to stay tight due to strong population growth.