Canada’s economy is making progress but the average worker is in a rut. A new report from the National Bank of Canada (NBF) explains to investors that the economy is doing much better than most anticipated. Unfortunately, that’s going to be short-lived as economic anxiety takes control of households. Consequently, they see up to 190k jobs lost within the next few months.
Canada’s Economy Exceeded Expectations, But Still Not Enough
Canada’s economy was heading towards the gutter until a flurry of economic revisions. It turns out the economy has been doing much better than previously believed, especially in the face of tariff threats. NBF notes that cutting the policy rate by 225 basis points since June 2024, had Canada on track for a soft landing.
“Indeed, the economic recovery has recently exceeded economists’ expectations, with the Citi Economic Surprise Index reaching its highest level in almost three years,” says Matthieu Arseneau, Deputy Chief Economist at NBF.
Though he warns, “… the upturn is likely to be short-lived, if consumer confidence level is anything to go by, which was at a record low in February.”
Source: National Bank of Canada.
As discussed yesterday, despite the upbeat data—most households are focused on the dark clouds accumulating. The lack of confidence means consumers will put away a little more cash, and hit pause on major purchases and investments. The bank warns this insecurity has pushed consumer activity to “extreme” lows, and businesses will feel this pressure.
“A weakening of the Canadian labour market is all the more likely as consumer pessimism is shared by business owners,” he notes.
Canada’s Unemployed Population To Surge In The Next Few Months
Less spending means lower revenues for businesses, which in turn will result in cutbacks. The bank estimates GDP growth of 1.2% in 2025, which is better than no growth but not by much when contrasted with the population boom. As a result, they’re forecasting unemployment (6.6% in February) will rise into the range of 7.0-7.5% over the next few months. That works out to 90k to 190k more unemployed workers, not accounting for population growth.
Economists generally believe that a 0.5 point unemployment increase within 12-months is enough to kick off a recession. In this case, they’re estimating that it can be nearly that volume over just a few months. Yeesh. No wonder people have such a dreary outlook despite all of the positive data revisions.