Assessing Canada’s outlook by looking abroad.

In recent quarters, we predicted the political and policy environments could get quite interesting and that economic outlooks—both in Canada and worldwide—were highly uncertain as a result.

Those expectations have certainly proven true through the first three quarters of 2025. In the following update, we’ll briefly review the domestic environment and then discuss the importance of the global outlook to Canada’s economic fortunes.

There are headwinds… 

The two major headwinds to domestic economic performance remain household indebtedness and the labour market, where the unemployment rate continued to rise, reaching 7.1% through August.

Despite these headwinds, the Canadian economy has continued to demonstrate resilience, with a formal recession yet to take hold. This is almost certainly due in part to fiscal support measures at the federal level and (thanks to comparatively better progress on lowering inflation) relatively low interest rates. It’s important to note, however, that Canada’s economic fortunes are also tightly linked to external developments. This is not surprising given its categorization as a small, open economy, but even more important given the stretched state of household finances. While the global economy also faces plenty of uncertainty, there are reasons to believe it will continue to lend some support to activity within Canada. As a result, there are grounds for guarded optimism, despite the discouraging domestic employment situation and ongoing trade upheaval with the U.S.

…but also guarded optimism, despite global uncertainty 

There are still reasons to be concerned about the global economic outlook. Obvious examples include the potential for stubbornly high and even reaccelerating inflation, the Trump Administration’s ongoing attacks on prior global trade and immigration patterns, military conflicts, and softening labour markets in many countries. The latter is an area where Canada stands out, unfortunately.

While some of the countries that have experienced a surge in unemployment are, like Canada, faced with high household debt levels, that factor alone does not explain the dynamic.

However, investors shouldn’t overlook that the global economy has continued to chug along despite all the aforementioned risks, high levels of uncertainty, and some notably softer national labour markets. Nor should they ignore that global activity appears to have lent a welcome measure of support to the Canadian economy recently. For example, after struggling in the second quarter, a rebound in economic growth during July was driven by export-oriented sectors such as mining, energy, and manufacturing. This helped overcome the recent contraction in domestic retail activity, according to Statistics Canada. As we noted in our previous economic outlook, the expansion of exports to countries other than the U.S. was encouraging, and Canada stood to benefit from continued gold and precious metals demand by foreign central banks seeking to diversify massive (especially in the case of the People’s Bank of China) foreign-currency reserves. If investor interest in this theme continues to broaden, it should lend further support to the domestic mining sector. 

One especially important dimension to the global outlook is the likelihood of expanded fiscal expenditures in many countries over the rest of the 2020s. This includes Canada, where larger deficits are expected to be driven by defence spending and infrastructure investment, although details won’t be clear until the government’s long-delayed budget is finally released— hopefully—in early November. This being said, a number of other countries have been running and/or are expected to run sizeable deficits in the years ahead, including China, France, Germany, Japan, the U.K. and the U.S.1 While this could raise the risk of unwanted inflation and thus make some central bankers’ jobs more difficult, it should also be supportive of overall global activity. If it is, a small, open economy like Canada’s that’s actively seeking to expand trade relationships beyond the U.S. could benefit.

Important information 

SEI Investments Canada Company, a wholly owned subsidiary of SEI Investments Company, is the Manager of the SEI Funds in Canada. 

The information contained herein is for general and educational information purposes only and is not intended to constitute legal, tax, accounting, securities, research or investment advice regarding the Funds or any security in particular, nor an opinion regarding the appropriateness of any investment. This information should not be construed as a recommendation to purchase or sell a security, derivative or futures contract. You should not act or rely on the information contained herein without obtaining specific legal, tax, accounting and investment advice from an investment professional. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. There is no assurance as of the date of this material that the securities mentioned remain in or out of the SEI Funds.