Canada’s new federal government takes office amid a complex and fragile economic environment. Growth has slowed, productivity has weakened, and fiscal flexibility is limited. According to RBC Economics, although a technical recession may not occur, the economy will feel recession-like for many industries and households through the remainder of 2025 [RBC Economics, 2025].
This period will require the government to balance immediate needs with long-term reform. For Canadian business leaders, understanding these challenges is essential to planning ahead and making smart strategic decisions.
Here are six key economic issues the new government must address, along with insights into what businesses should expect and how they can prepare.
1. Slower Growth, Felt Unevenly
Canada is not forecasted to enter a formal recession, but economic growth is projected to remain weak. The Bank of Canada expects GDP growth of 1.8 percent in 2025, only a modest improvement from 2024 [Bank of Canada, Monetary Policy Report, Jan 2025]. However, this slow growth will not be felt equally. Regions reliant on trade, manufacturing, and consumer spending may feel sharper slowdowns, particularly in Ontario and Quebec.
What businesses should watch: Targeted stimulus by sector, provincial economic responses, and household support programs.
How to prepare: Build resilience by reassessing demand assumptions, tightening cost structures, and modeling multiple growth scenarios.
2. Structural Productivity Challenges
Canada’s long-term growth ceiling continues to shrink. Labour force participation has plateaued and productivity is lagging behind peer economies. The Parliamentary Budget Officer warns that unless investment in productivity improves, potential growth could remain below 1 percent [Parliamentary Budget Officer, March 2025].
What businesses should watch: Federal programs tied to technology adoption, workforce upskilling, and innovation investment.
How to prepare: Audit internal processes for productivity bottlenecks and explore government-backed modernization grants or training subsidies.
3. A Shift from Monetary to Fiscal Policy
The Bank of Canada has limited room to ease interest rates further. With inflation still a concern, fiscal policy will take center stage as the primary economic stabilizer. According to RBC, fiscal measures are the only viable tool for delivering targeted support and investment during this cycle [RBC Economics, April 2025].
What businesses should watch: Federal budget announcements, infrastructure and housing allocations, and small business tax credits.
How to prepare: Align strategic planning with government priorities. Businesses operating in infrastructure, housing, or clean energy may see more public-private investment opportunities.
4. Trade Volatility and Protectionist Pressures
Canada’s trade environment remains uncertain. The recent imposition of tariffs by the U.S. has already disrupted key export sectors. RBC projects that a permanent 25 percent tariff shock could cost the Canadian economy up to $145 billion over two years [RBC Economics, April 2025]. Canadian firms are also facing delays and new compliance costs in cross-border trade.
What businesses should watch: Changes in trade agreements, U.S. election developments, and federal support for exporters.
How to prepare: Diversify suppliers and export markets, invest in trade compliance expertise, and monitor changes to the Canadian Trade Commissioner Service programs.
5. Rising Fiscal Pressure and Spending Scrutiny
The federal government is expected to maintain elevated spending in areas like housing, health care, and defense. However, with debt levels rising, there will be greater scrutiny on how public dollars are used. Fitch Ratings recently warned that increased social spending without corresponding growth could pressure Canada’s fiscal credibility [Fitch Ratings, April 2025].
What businesses should watch: Program spending reviews, fiscal sustainability frameworks, and tax reform efforts.
How to prepare: Stay informed on upcoming tax changes or adjustments to business deductions. Companies contributing to innovation or job creation may be better positioned for continued public support.
6. Internal Trade and Regulatory Barriers
The federal government has pledged to reduce interprovincial trade barriers by removing over half of its exceptions to the Canadian Free Trade Agreement [Government of Canada, Feb 2025]. This effort could improve market access for businesses across the country, particularly those operating in multiple provinces or sectors subject to duplicate regulations.
What businesses should watch: Further harmonization efforts in licensing, labor mobility, and product standards.
How to prepare: Identify markets where provincial expansion has been limited by regulation and prepare to capitalize as barriers ease.
Moving Forward: How Businesses Can Stay Aligned with Federal Strategy
This is a pivotal moment for Canadian policy and business. The government must respond to both short-term pressures and long-term opportunities. For businesses, success will depend on the ability to stay informed, adjust quickly, and align with national priorities around productivity, innovation, and resilience.
How Prime Capital Supports Businesses in Uncertain Times
At Prime Capital, we work with Canadian business leaders to navigate economic volatility with clarity and purpose. From financial strategy reviews to scenario planning, we help our clients prepare for change without compromising long-term goals.
If your organization is reviewing its strategy in light of these national trends, we can help you plan with precision.
Schedule a conversation with a Prime Capital strategist today.
