4 Financial Trends That Could Shape Canada in 2025 #CanadaFinance

After a year of economic turbulence, 2025 could be Canada’s time to shine. With inflation finally expected to stabilize below the Bank of Canada’s target and predictions of leading G7 economic growth, the nation’s economic outlook shows serious promise.

But this brightening picture comes with a few caveats: credit card debt continues to burden many households and the housing market remains inaccessible for many.

With interest rates projected to dip below 3% by mid-year, Canadians will face crucial decisions about managing debt and shoring up their financial foundations.

Here’s what this potentially transformative year could mean for Canadian wallets.

1. Canada will take the global economic lead

Shannon Terrell: It looks like 2025 could be Canada’s comeback story. With the bucking bronco of inflation finally lassoed beneath the Bank of Canada’s 2% threshold, we’re looking at an economy primed and ready to gallop.

Our predicted position as 2025’s fastest-growing G7 economy isn’t just economic bragging rights; it could be a real game-changer for everyday Canadians. Think: a muscled-up loonie, policy rate cuts and a reinforced job market. So long as inflation continues to limbo below the Bank’s benchmark, we could be looking at policy interest rates whittled below 3% by mid-2025.

Canadians are already positioning themselves for this upswing, too. Twenty-three percent plan to jump back into investing once rates drop, according to a survey conducted by The Harris Poll on behalf of NerdWallet Canada.

2. The divided housing market will persist

Clay Jarvis: I think we’ll see a bifurcated housing market for at least the first month or two of 2025. Canada’s new insured mortgage limits, which will make properties in the $1-1.5 million range far more attainable, kick in on December 15. That’s almost certainly going to spark demand and sales in markets with prices that top $1 million.

I’m not so bullish on everywhere else. Markets with average prices over $600,000 seem to be at a standstill, and that’s taking into account the first three Bank of Canada rate cuts and 4% fixed mortgage rates. The Bank will keep hacking away at rates, but buyers may be hemmed in by other factors, like decreased savings, higher debt loads and anxiety over the state of the economy.

All those obstacles will shrink considerably if the Bank of Canada slashes the overnight rate by another full percent. At that point, it’ll be game on — everywhere.

3. Credit card debt dangers will linger

Shannon Terrell: Despite the projected glow-up for Canada’s economy, the subject of credit cards may require a sobering reality check. Credit card debt among Canadian adults leapt from 43% to 55%, according to NerdWallet Canada’s 2024 Canadian Consumer Credit Report.

And this isn’t your quick-fix variety of debt: over half of those with credit card debt are looking at a six-month-plus payoff marathon. Canadians may be tempted to interpret 2025’s potentially friendlier interest rates as an all-you-can-spend buffet, but consumers should think twice before putting an expense on credit.

The Bank of Canada’s policy interest rate may fall, but credit card providers are under no obligation to offer cardholders a discount. With credit card purchase interest rates stubbornly stationed near 20% for the foreseeable future, Canadians battling card balances into the new year might find relief by exploring their balance transfer credit card options.

4. Spending will be restrained

Clay Jarvis: Canadians are carrying colossal amounts of non-mortgage debt, and are falling behind in their attempts to pay it off. Those concerned about their credit scores and financing major purchases have to get out from under that debt; doing so means prioritizing debt pay-downs over new purchases.

With interest rates and inflation both falling, paying off debt becomes a lot easier to commit to. Seventeen percent of Canadians polled by The Harris Poll on behalf of NerdWallet Canada said they plan to use some of their savings to pay off debt once interest rates decrease.

Even if millions of Canadians don’t magically decide to tackle their debts next year, a shaky economy might also result in less spending — and more saving. If economic growth sputters and consumers are concerned about job security, bolstering their emergency funds might make them feel more at-ease.