Wells Fargo Outlook on Canadian Economy

Wells Fargo (NYSE:WFC) released its outlook on the Canadian economy, noting a mixed forecast for 2025. The household sector shows resilience due to increasing real incomes and a likely decrease in interest costs.

However, the corporate sector faces challenges. Negative sentiment and declining profitability might hinder business investment. Potential U.S. tariffs and political uncertainty following Prime Minister Trudeau’s resignation further complicate the landscape.

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, a slight improvement in Canada’s GDP growth is expected, with a projection of 1.7% in 2025, up from an estimated 1.3% in 2024. Risks lean towards a slower recovery than anticipated.

Inflation in Canada remains contained, with domestic inflation slowing and labor cost pressures easing, allowing the Bank of Canada to continue reducing policy interest rates in upcoming meetings.

Wells Fargo forecasts a series of rate cuts by the Bank of Canada, predicting a 25 basis point reduction in January, March, April, and June, bringing the policy rate down to 2.25%.

This reduction would position the rate at the lower end of the neutral policy range. Additionally, 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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