(Editor’s note: This post has been updated with the latest from the federal government’s fall economic statement)
Chrystia Freeland’s resignation as Canada’s finance minister highlights increasing uncertainty in the country’s political environment as financial challenges loom in 2025.
Reaction was limited in Monday’s financial markets, though. The Canadian dollar slipped to its lowest level since the pandemic, and the yield on the Canadian 10-year bond inched up from 3.15 per cent to 3.22 per cent.
Freeland’s resignation from Prime Minister Justin Trudeau’s cabinet added to the uncertainty in the political sector that will likely linger into next year, when the next federal election is expected.
Shortly before Freeland’s announcement, Immigration Minister Sean Fraser, another high-visibility minister in the Liberal cabinet, said he would not seek re-election.
Immigration has been top of mind for Canadians amid economic challenges, including a slowing labour market and housing shortages. The tax holiday also is expected to yield only modest economic results for Canadian households.
Although the impact on the financial markets has been moderate, an event like this could contribute to Canada’s challenge to attract foreign investments next year — when the inauguration of Donald Trump is expected to bring trade policy uncertainty for Canada.
Fall economic statement released
The federal government proceeded with its fall economic statement despite Freeland’s resignation. While the government fell short of its deficit goal, the pivot to boost business investments is promising and supportive of a positive growth outlook in 2025.
As Canada grapples with faltering productivity and declining gross domestic product (GDP) per capita — and, subsequently, standard of living — the federal government needs to prioritize ways to motivate business investments. The $17.4 billion in spending to support investment incentives and the easing limits for pension funds making investments in Canadian companies are examples from the statement.
The statement acknowledged the downside risks to Canada’s growth outlook. Deficit ballooned to $61.9 billion, up from the expected $40 billion, and deficit will continue to exceed estimates for several years to come.
But the government achieved a debt-to-GDP ratio of below 42.1 per cent and a deficit-to-GDP below one per cent.
The update also includes a $1.3 billion in spending on border security in an effort to mitigate trade concerns from the incoming Trump administration. Given the uncertain policy environment, it is unclear if this spending is sufficient to delay or fend off potential tariffs.
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