Economists at some of Canada's largest financial institutions appear willing to give the prime minister
a chance to prove its worth, although some said the government's plans for the next five fiscal years did not go far enough to protect and boost growth in the crisis-stricken economy.
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And there is no doubt that the economy is suffering.
The budget projects growth of 1.1 percent this year and 1.2 percent in 2026, down from 1.9 percent and 2.1 percent, respectively, in the fall economic report released last December. The unemployment rate is expected to remain high, according to the budget, averaging seven percent this year and eventually falling to six percent in 2029.
This is what economists have highlighted from the 2025 budget.
“Rome wasn't built in a day”: CIBC Capital Markets
“The real challenge will not be to finance several years of higher deficits, but to get money out in time and put it into large capital projects and housing construction to boost growth as the economy struggles to adjust to U.S. tariffs,” economists at CIBC Capital Markets said in a note.
The 2025 budget projects a deficit of $78.3 billion in fiscal year 2025.
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Next year the deficit will be $26 billion and $65 billion, with the deficit remaining elevated over the five-year horizon.
Economists Avery Schoenfeld, Ali Jaffari and Catherine Judge predict that by 2025…
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26 The budget deficit, which remains below some deficit estimates of $100 billion, should not raise concerns about “fiscal sustainability” as it stands at 2.5 percent of gross domestic product (GDP).
“This year's federal budget deficit is consistent with past periods of economic weakness,” the trio said.
If provincial deficits are added, the figure increases by four percent, to 4.5 percent of GDP.
But even that is not alarming, according to economists, as it puts Canada in the “middle of the pack” compared with other advanced economies and below the United States, which has a deficit-to-GDP ratio of six percent.
“This U.S. deficit is structural in nature and is likely to be sustainable rather than due to a lull in economic activity, as is the case north of the border,” they said.
President Donald Trump's trade war has created a situation where stimulus is needed now. But a budget that depends on significant capital projects to counteract the damage from tariffs will not stimulate the economy for some time.
“Rome was not built in a day, nor were ports, housing projects or LNG terminals,” they said.
Schoenfeld, Jaffari and Judge warned that as spending finally gets going, federal service cuts (projected to be $60 billion over a five-year period) could wipe out any economic growth momentum.
“Canadians will therefore have to exercise some patience as they assess the ultimate impact of this budget on economic growth, which may play out over the longer term as the economy benefits from improvements in capital assets and infrastructure,” they said.
“Transitional” rather than “transformational”: Central Alberta
“The budget was touted as 'transformational,' but it is more of a 'transitional,'” Charles St. Arnaud, chief economist at Alberta Central Credit Union, said in a note, “deviating from some of the previous government's policies.”
However, the budget challenges some records set during the economic crisis.
For example, the last time, outside of the pandemic, the deficit reached 2.5 percent of GDP was in 2009, during the great financial crisis. That means the debt-to-GDP ratio will continue to rise rather than slow as predicted in last year's fall economic report.
St. Arnaud said there are several areas in the budget where the outcome remains in question, including $60 billion in spending cuts over five years. St-Arnaud said caution was also needed given the expectation that private sector business investment would increase by $500 billion, lured by tax breaks.
He warned the budget could lead to “some creative accounting” as the government tries to stick to its new fiscal anchors, balancing operating costs and revenues while maintaining the falling deficit-to-GDP ratio.
“While some may worry about the size of the deficit and increased spending, Canada's economic challenges require bold initiatives, whether it's offsetting the impact of U.S. tariffs on the economy, improving affordability or boosting productivity,” St. Arnaud said.
“Reluctance to go all in”: Desjardins
Canada's 2025 budget fell short on several fronts for Desjardins' chief economist Jimmy Jean and deputy chief economist Randall Bartlett.
For example, Ottawa said it plans to cut spending by $60 billion over the next five years, which is “not in line with expectations,” Jean and Bartlett said in the note.
Earlier this year, the federal finance minister called for cuts of $60 billion over three years. This is half of the savings mentioned earlier. Meanwhile, $500 billion in tax breaks meant to help boost investment “did not meet the ambitious expectations that the Government of Canada set before Budget Day,” they said.
The government has also switched its fiscal anchors to a lower deficit-to-GDP ratio and a balanced operating budget, but Jean and Bartlett believe Canada's AAA credit rating will remain unchanged despite the changes.
“We expect the rating agencies to be satisfied that the fiscal outlook is in line with expectations and that a debt downgrade is unlikely in the near future as Canada continues to have one of the best fiscal positions among advanced economies,” they said.
Economists were also disappointed by the announced $2.3 billion in spending on defense research and development, which they see as a key area of wealth creation.
“Overall, while Budget 2025 is broadly moving in the right direction, it appears to reflect a reluctance to do everything possible to invest in Canada and find the savings that will help pay for it,” they said.
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