Trade headwinds and slower immigration are reshaping provincial housing and economic trends
Canada's provinces are likely to end the year with slower economic growth than 2024, according to Scotiabank's latest Provincial Outlook, with a complex web of trade, monetary, and demographic pressures weighing on their performance.
“Most Canadian provinces are poised for slowdowns in 2025,” the report said, highlighting that while US tariff rates have eased from their initial highs, they remain a significant drag, especially for manufacturing-heavy regions like Ontario and Quebec.
“The burden of these tariffs is not evenly distributed across the country,” Scotiabank said, noting that resource-based provinces such as Alberta and Saskatchewan have been relatively insulated.
Economic uncertainty, though lower than earlier in the year, continued to dampen consumer confidence and business investment. The looming review of the Canada–United States–Mexico Agreement (CUSMA) added another layer of unpredictability.
In response to softening economic and labour market data, the Bank of Canada cut its policy rate in September, with another reduction expected by year-end. “It will take some time for the positive impact of new major projects to feed through the economy,” Scotiabank said.
Household spending and labour market strains
Household consumption, a key driver of mortgage demand, remained resilient through early 2025, buoyed by the lagged effects of monetary easing. Provincial retail sales were up between 3% and 8% year-over-year through July. However, this momentum has plateaued.
“Unemployment has been trending higher since mid-2023,” Scotiabank said, with the national rate reaching 7.1% in August after the economy shed 115,000 jobs over the summer.
Ontario led job losses, down about 50,000 positions, while Saskatchewan bucked the trend with employment up 2.5%.
“We expect weakness in the labour market to continue,” the report said, suggesting household spending—and by extension, mortgage activity—will soften further.
Housing investment and regional divergence
The housing market’s response has been uneven. Existing home sales slowed in most provinces after the onset of the trade war and a pause in rate cuts, especially in British Columbia and Ontario, but began to recover over the summer.
“Residential investment has contributed positively to growth through the first eight months of the year in most provinces,” Scotiabank said, though British Columbia, Alberta, and Newfoundland and Labrador saw declines.
Housing starts fell in Manitoba, Ontario, and Newfoundland and Labrador, signaling potential headwinds for mortgage origination in those markets. On the other hand, Saskatchewan and Prince Edward Island posted strong gains in both investment and starts.
Non-residential investment remained subdued nationwide, with business investment flat or negative, although public investment provided a buffer in provinces like Nova Scotia and PEI. “We expect business investment to continue to be negatively impacted by the ongoing tariffs and uncertainty,” Scotiabank said.
Demographic headwinds and mortgage demand
A sharp slowdown in population growth—driven by federal immigration policy changes and a contraction in non-permanent residents—has further weighed on provincial outlooks.
Ontario and BC, with high numbers of international students, have seen the weakest population growth, directly impacting housing demand. “All provinces are facing significant slowdowns, which will weigh on potential growth in each province,” Scotiabank said.
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