Canada
The economy headed into the closing days of 2025 with a (mild) bang and not a whimper, as third quarter GDP and late fall employment strengthened (Sep-Oct-Nov = +181,000) despite the moderation in December’s job growth (+8,000). While overall Inflation has remained subdued and within the Bank of Canada’s target range, price increases have been uneven, with energy costs falling but food prices rising. Targeted tariffs of up to 50% on U.S. imports of Canadian aluminum, steel, lumber and autos, have delivered real and substantial negative impacts on those segments of the economy. On the plus side, Canada has largely been shielded from the U.S. goods tariff regime through the protections under the Canada-U.S.-Mexico (trade) Agreement, or CUSMA. However, the U.S. has served notice to both Canada and Mexico of their intention to renegotiate the agreement, creating a real and meaningful risk going into 2026. In the meantime, the Carney government continues to push for foreign direct investment into Canada, while working to smooth over federal-provincial relations and reduce inter-provincial trade barriers to offset and diversify away from its dependency on the massive U.S. market. Canadian equities hit all-time highs to end the year, with the S&P/TSX Composite rising almost 30%, as the Financials (i.e., banks), Materials (i.e., gold, silver, copper), and Energy (i.e., oil, gas) sectors soared.
United States
The world’s largest economy posted strong third-quarter growth (4.3%, annualized) and are anticipating 5.4% growth in the fourth quarter. This would cap a mixed but ultimately a strong year for the economy, however the unemployment picture continued to darken with only a moderate increase in November non-farm payrolls. It is important to note that, given the record-long federal government shutdown this fall, many economic statistics may be revised, some possibly sharply. An unusual “no job loss-no job growth” scenario seems to have set in, with hiring stagnating as employers hesitate in the face of the huge uncertainty created by the U.S. administration’s trade and tariff policies and their real and potential impacts. The U.S. Federal Reserve (Fed) cut its benchmark interest rate by another 0.25% at its rate-setting Federal Open Market Committee meeting in December, ending the year 0.75% lower than where it began. The central bank continues to tread carefully, though, as worries over stubbornly high and (slowly) rising inflation remain a key focus, and the impact of increasing prices due to tariffs and other trade policies bite into consumers’ wallets. The “K-shaped” economy – characterized by rising income and wealth for the top 10% of Americans (the upper arm of the K) and the opposite for the other 90% - is becoming increasingly acute, resulting in changes to buying patterns and increasing wealth disparity. U.S. markets posted another strong year – though they lagged many major global markets – lifted by Fed interest rate cuts, massive AI capital investment, and expectations of rising corporate profits.
Europe
The continent continued to post subdued growth, but is still expected to end 2025 in the plus column, with euro area GDP rising just over 1%. Consensus growth projections for 2026 reflect much the same. Employment remained a positive for the area, though with AI job losses an increasing concern. U.S. tariffs have hurt exports across the region, but restrained inflation and hopes of an end to the conflict in Ukraine have buoyed hopes for better days ahead. Economic conditions have allowed the ECB to lower rates, reducing borrowing costs and debt burdens. Factory activity slumped near the end of the year, as did manufacturers’ purchasing, a worrying sign for the economy. On a brighter note, European equities had a strong year, with several bourses (i.e., European stock markets) exceeding the returns of the U.S. S&P 500. The region’s stocks offer an attractive alternative if the earnings recovery gains momentum and valuations begin to reflect improving fundamentals.
Asia
Most of Asia’s economies posted solid growth in 2025 in the face of the upheaval generated by the new U.S. administration’s dramatically altered trade policies. However, it is expected to slow slightly in 2026, as softer global trade, driven by the U.S. tariff policies, have the potential to weigh on exports. Importantly, domestic demand remains strong amid monetary-policy easing. Inflation remains mostly contained, giving central banks the leeway to make interest-rate cuts where required. Expectations are rising that export demand will flow to other nations beyond China (e.g., Japan, Taiwan, South Korea), as the two world powers jostle over economic control and AI supremacy. China’s economy continued to strengthen, although largely due to government intervention than natural demand from consumers and business. The country has largely dodged the impact of U.S. tariffs through their efforts to diversify their export markets, but it continues to see a downshift in the economy as it matures from its high-growth period.
Emerging Markets
Performance was mixed across the EM in 2025, with fears of a sharp economic downturn driven by U.S. trade and tariff policies largely unrealized as these countries proved to be more resilient than anticipated. Powerhouse India showed signs of weakening but was still likely to lead EM growth in 2025. Overall, these countries were expected to post less than their collective long-standing average annual 4%-plus GDP growth in 2025. Prolonged weakness in the U.S. dollar would likely support further EM outperformance and provide their central banks with opportunities to ease monetary policy, with both of these developments supporting business growth through cheaper debt-servicing costs and greater investment financing opportunities.
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