The Bank of Montreal has published an in-depth analysis of nine key trends. Here’s a topline of several economic indicators and what to expect in 2025.

The world economy is holding up. Economic growth in the U.S. has continued to exceed expectations, allaying earlier fears about the possibility of a Fed-induced recession. Brisk growth south of the border is acting as a crucial pillar of support for the global economy, given the loss of momentum in Japan, Europe, Canada and even China. Interest rates are still relatively high in most countries, but global growth appears on track to accelerate slightly in 2025 as long as geopolitical and trade risks don’t spiral.

The low-flying loonie. The weak Canadian dollar is acting as a broad support for domestic agricultural prices, which would likely be around 10 per cent lower under a more neutral exchange rate. The flip side, however, is that imported inputs are also costlier. 

Expensive inputs.  Although fuel, fertilizer and feed costs have come partway back to earth, other inputs have remained pricey and the overall index has remained near record highs. Farm equipment prices have been a notable pain point, as many of the most sophisticated (and expensive) agricultural implements are imported from the United States and elsewhere.

Interest rates coming down the mountain. The Bank of Canada is highly likely to continue lowering rates to shore up the economy and keep inflation near target – what we don’t know is how quickly, or how far. A return to quarter-point cuts is probable. However, with the economy now operating below capacity, it’s likely that the Bank of Canada will not only let off the brakes but tap the gas. As a result, we have pencilled in a slightly stimulative policy rate of 2.50 per cent by summer 2025, implying another 0.75 percentage points in cuts from here (likely putting prime at 4.7%). Longer-term fixed rates should also trend lower, though five-year borrowers will still be resetting into higher rates.

Trade turmoil. Agricultural products are frequently targeted during trade wars, and even if Canada is spared direct U.S. tariffs, trade actions by China have the potential to strand U.S. farm products in North America and depress benchmark crop prices (as occurred with soybeans in 2018).

Prodigious productivity growth. Over the longer term, the agriculture sector has posted a standout performance against an otherwise weak productivity backdrop in Canada. Since the late 1990s, total labour productivity in Canada – the main determinant of living standards – has increased by a lacklustre 31 per cent, and it has declined outright over the last few years. In the agriculture sector, labour productivity has surged 190 per cent over the same period, spurred by investments in technology and the adoption of new and innovative processes. Few sectors of the economy can hold a candle to that performance. 

Source: Bank of Montreal December 12, 2024 news release