Wells Fargo sees mixed outlook for Canadian economy in 2025 amid U.S. tariff policy, local politics

Investing.com – Wells Fargo (NYSE:WFC) on Wednesday released its outlook on the Canadian economy, highlighting a mixed forecast for 2025, with the household sector showing resilience due to increasing real incomes and a likely decrease in interest costs.

However, the corporate sector is facing challenges, with a negative sentiment and declining profitability, which could hinder business investment.

The Canadian economic landscape is further complicated by potential U.S. tariffs and political uncertainty following Prime Minister Trudeau’s resignation.

Wells Fargo anticipates that U.S. imports from Canada may be subject to a 5% tariff starting mid-year, adding to the challenges for Canadian exports and investment.

Despite these factors, Wells Fargo expects a slight improvement in Canada’s GDP growth, projecting an increase to 1.7% in 2025 from the estimated 1.3% in 2024. However, the risks lean towards a slower recovery than anticipated.

Inflation in Canada remains contained, with domestic inflation slowing and labor cost pressures easing. This environment, according to Wells Fargo, should allow the Bank of Canada to continue reducing policy interest rates in the upcoming meetings.

Wells Fargo forecasts a series of rate cuts by the Bank of Canada, with a reduction of 25 basis points each in January, March, April, and June.

This would bring the policy rate down to 2.25%, which is at the lower end of the neutral policy rate range. The firm also suggests that sluggish growth and cautious policy easing by the Federal Reserve could result in the Canadian dollar remaining weak over the medium term.

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