Economists say results for housing and growth will take time
Canada’s 2025 federal budget, the first under prime minister Mark Carney, has drawn a measured response from economists, who agreed that while the plan signals a shift toward long-term investment, its benefits will take years to materialize.
The budget projected economic growth of just 1.1% in 2025 and 1.2% in 2026, with the unemployment rate expected to hover around 7% this year and only gradually fall to 6% by 2029.
Deficits are set to remain elevated, with a $78.3 billion shortfall forecast for 2025–26 and $65 billion the following year.
Still, economists at CIBC Capital Markets said these numbers are not out of line with previous downturns. “This year’s federal deficit isn’t out of line with past periods of economic weakness,” Avery Shenfeld, Ali Jaffary and Katherine Judge said, pointing out that Canada’s deficit-to-GDP ratio remains below that of the United States.
However, the real challenge, they argued, will be execution. “The real challenge won’t be to finance a few years of higher deficits, but to get money out the door and into large capital projects and housing developments in time to lift growth while the economy struggles to adjust to U.S. tariffs,” the CIBC team said.
“Rome wasn’t built in a day, and neither are ports, housing projects or LNG terminals.” They warned that cuts to federal services—projected at $60 billion over five years—could offset any growth from new spending.
“Canadians will need to exercise some patience in judging this budget’s ultimate impacts on growth, which might show up over the longer term as the economy benefits from the improvements in capital assets and infrastructure,” they said.
Desjardins’s chief economist Jimmy Jean and deputy chief economist Randall Bartlett echoed the sentiment, noting that the $60 billion in planned spending cuts fell short of earlier expectations.
“All in, while it is broadly headed in the right direction, Budget 2025 seemed to reflect a reluctance to go all-in on investing in Canada and finding savings to help pay for it,” they said.
They added that Canada’s AAA credit rating is likely safe, but the budget’s tax credits and investment incentives “fell short of the ambitious expectations the Government of Canada built up prior to budget day.”
Scotiabank analysts described the budget as a “constructive step” for long-term productivity, highlighting $280 billion in planned capital spending over five years.
“Investors will likely see this as a green light for real-asset and technology-focused investment themes within the Canadian market,” they said. The analysts stressed, however, that “delivery is everything and execution risks loom large,” with project delays and bureaucratic hurdles remaining key concerns.
Broader implications for the mortgage and housing sectors include the government’s focus on infrastructure, supply chain renewal, and housing developments, but industry stakeholders should not expect immediate relief.
Similar government initiatives have historically taken years to filter through to mortgage rates, housing affordability, and market stability.
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