Focus
December 12, 2025 | 14:03
2026 Outlook and Best Charts of 2025
Economics
Economics
Best Charts of 2025A roller-coaster year of deep lows (tariffs, shutdown) and lofty highs (stocks, AI), our charts tell the tale. |
| Tariffs The ‘Liberation Day’ tariffs didn’t last long as financial markets convulsed, and all countries were temporarily reset at 10% while trade deals were crafted. All except for China, which ignited a tit-for-tat war that pushed bilateral levies to 125% and America’s average tariff rate to its highest in more than 120 years. A temporary pact with China, along with other bilateral deals and sector duties, have resulted in a (roughly) 17% rate. U.S. Customs is currently collecting at around 11% as businesses find ways around the taxes. Even so, $31 billion collected monthly is nothing to sneeze at, and is helping to limit a rise in the massive budget deficit. |
| Global Trade It’s frankly not the scenario one would have imagined when President Trump first announced his ‘Liberation Day’ tariffs, but it’s been a banner year on the trade front. The latest World Trade Monitor shows world export volumes grew 4.2% y/y in the first three quarters of the year (vs. 2.4% a year ago). However, the more interesting data to decipher revolves around the winners and losers. Rather unsurprisingly, China (+8.7%) and many of its neighbours (Taiwan, Vietnam, etc.) witnessed big gains, as did Latin America. U.S. exports have held up well to date (+1.6%). On the flip side, the Euro Area (-0.4%) and the U.K. (-1.9%) have been clear losers. |
| Canada-U.S. Travel In Canada, one of the more popular responses to the trade war was to avoid leisure travel to the United States. The number of Canadian travellers returning from the U.S., which never really recovered from pre-COVID levels, plunged to roughly 2.3 million per month in April and has hovered there since. That’s about 30% (or 1 million people) less than the 2024 average. In contrast, the number of U.S. travellers to Canada dipped a touch in the spring but turned back up in the second half of the year, and is in line with pre-COVID norms. |
| Monetary Policy Apart from the BoJ, G10 central bankers addressed the trade war and economic weakness by extending their easing cycles in 2025. Leading the pack (by far) was New Zealand’s 200 bps of cuts (and the only one of the group to slash by 50 bps in one fell swoop; in fact, twice). Next up were the ECB and Bank of Canada with 100 bps of trimming, followed by the Fed, BoE, RBA and Riksbank at 75 bps. With rates closer to neutral levels, several banks have now suggested they are done easing, though the BoE could squeeze the easing trigger again on December 18. By contrast, the BoJ raised rates by 25 bps back in January and looks set to do so again on December 19. |
| Global Bond Yields Canadian 10-year yields lurched higher late in the year, and ended 2025 higher than they began—despite 100 bps of BoC easing on the year. A changing outlook for monetary policy drove the late-year back-up. However, the rise was mild compared to much of the world, where fiscal policy also played a role. U.K. yields had mostly mirrored GoCs for much of the past 15 years, but they split apart in 2025 on deepening concerns over Britain’s budgetary woes (echoed in France). Japanese yields, meanwhile, were headed for 2% by year-end for the first time since the late 1990s, as the BoJ tightened and the economy left years of deflation in the past. |
| Canadian Fiscal Finances The trade war shocked many areas of the Canadian economy, but few were more apparent than in government finances. The combined federal and provincial deficit is expected to widen from 1.4% of GDP last fiscal year to 3.8% in FY25/26. While we’re not particularly worried about broader sustainability just yet, it’s clear that both levels of government took a large bite out of their available fiscal room this year. This could compromise their ability to respond to the next crisis. |
| Canadian Equity Market The Canadian equity market had one of its best years of this century in 2025, with a total return nearing 30%, even as the headlines were mostly filled with economic gloom. This seeming conundrum was often explained away by the fact that the TSX is not very representative of the economy, as the index is heavily weighted in mining, materials, energy and financials—a relatively small portion of GDP. Yet, the TSX actually has been a very good leading indicator. While the fit is far from perfect, periods of strong returns usually presage strong economic growth, which means the robust 2025 market performance is a tantalizing hint that the economy may exceed expectations in 2026. At the very least, we can say that it is almost unheard of to have the economy slump when equities are forging higher. |
| U.S. Equity Market Is it an AI bubble? The hard part about bubbles is that they can run longer than most would think, but one has to believe that we’re heading in that direction given where valuations and the investor narrative are currently going. Now imagine a dovish-leaning Fed cutting rates even further in this environment. The market is also very concentrated, with the top-10 names in the S&P 500 now accounting for more than 40% of the index, almost entirely on the back of AI. As always, we’re mindful that lofty valuations are not a sufficient condition to break a bull market—stocks can go from expensive to very expensive, and often do. |
| Precious Metals Unlike the last two gold rallies that were triggered by the 1970s’ oil price shocks and the GFC, which ignited fears of runaway inflation, the situation is different this time around. Instead, the current rush for gold appears to be driven largely by its increasing role as a safe-haven asset, mainly due to twin concerns over fiscal sustainability and the desire of a growing number of central banks to diversify their reserves away from the U.S. dollar and other fiat currencies. The West’s decision to seize Russian financial assets is viewed as the catalyst behind the latter. This explains why the price of gold is running well above its inflation-adjusted price, unlike in prior episodes. |
| Canadian Labour Market Canada’s unemployment rate—comparable to the U.S. methodology and seasonally adjusted—fell to its lowest in more than one year at 5.5% in November after hitting 6.1% in August. It is now 1.1 ppts above the U.S. rate of 4.4% in September, which is a slightly smaller gap than the historical norm. To be sure, finding work is still a little harder north of the border, but the gap in job prospects has narrowed despite the trade war. In fact, the number of unemployed persons in Canada has fallen 0.9% since January, while shooting up 11.0% stateside. That may be one of the biggest economic surprises of the year. |
| U.S. Job Conditions Loosening After extremely tight conditions following the pandemic boom, the U.S. job market is easing. Labour demand has slowed significantly and is now decisively below potential supply. Meantime, Fed Chair Powell recently warned that the government payrolls data is likely overstated. This would imply that demand may actually be much weaker than the chart suggests, with employment risks tilted to the downside. Next year’s Fed policy actions will depend on the gap between labour supply and demand. If the spread widens meaningfully from here, the central bank will likely deliver more rate cuts to shore up conditions. |
| Artificial Intelligence 2025 was the year workers started thinking of AI in existential terms. Whether from large-language models doing more office-related tasks, or robots taking over assembly-line and warehouse positions, more workers are getting antsy. Although not yet making a meaningful impact on the aggregate employment data, some modest shifts may be occurring beneath the surface, notably at the entry level for some occupations, such as software coding. Worth watching in 2026 will be the share of U.S. layoff announcements attributed to AI, which averaged one-in-nine in the past six months to November. |
| Canadian Housing Market When we called the housing correction at the start of 2022, we argued that it would be measured in years, not months or quarters. That thesis was built on the fact that almost all factors that could have pushed home prices higher were doing so at the same time, leaving nowhere to go but down as those factors reversed. Real borrowing costs were deeply negative and have since normalized; speculative price growth expectations have been erased; the Millennial cohort continues to age out of its first-time homebuying years; and torrid immigration has been replaced by harder caps. The long process of resetting valuations, both from affordability and investment perspectives, is now well underway… and not quite done yet. |
| Canadian Rental Market Policymakers had been fighting housing affordability for years by trying to push more supply onto a market that was already building at capacity. But usually the simplest and most obvious answer is the right one. In this case, it was torrid population growth nearing almost 1.5 million people per year. With a simple stroke of a pen (i.e., setting immigration targets to more manageable levels), policymakers were able to turn the tide on housing affordability pressure. With rents and home prices falling across many markets, we are on the path back to affordability. As we like to say, supply takes years, demand takes minutes. |
