The Conference Board of Canada expects wage hikes will pick up speed in the coming years as the pace of population growth slows down.
The think tank said in a new economic forecast Monday (July 7) that Canada’s labour market has been “resilient” this year despite tariff pressures from the United States.
The national unemployment rate ticked up to 7% in May, though the Conference Board noted overall employment is still marginally higher than it was at the end of last year.
Cory Renner, the board’s associate director of economic forecasting, said in an interview that the Conference Board had previously expected a broad hit to jobs across the economy, but the impacts have so far been concentrated in trade-exposed sectors like manufacturing and transportation.
“The labour market’s actually holding up better than we expected,” he said.
Labour force growth expected to slow
The report expects hiring will be subdued for the rest of 2025 as businesses worry about expanding their payrolls amid trade war uncertainty.
Renner described the labour market as one where workers and employers alike are “afraid to make big moves.”
But he also said the federal government’s efforts to throttle immigration levels could start to tip the balance back toward workers in the years to come.
The labour force grew at a slower pace than total employment in the first quarter of 2025, the Conference Board report noted, the first time that’s happened in more than two years.
Businesses are going to struggle more to find talent in the coming years as a result, which Renner said will force employers to hire more from Canada’s existing labour pool.
The Conference Board expects these dynamics will drive the unemployment rate lower in the coming years, down to 6.2% in 2026 and 5.8% in 2027.
More competition among businesses for a shortage of workers will help keep wage growth ahead of inflation in the years ahead, he said.
“There is sort of a movement towards workers having a little more power, and that should accelerate wage growth a little bit in the second half of the year and into next year,” Renner said.
Economy growing modestly amid trade uncertainty
Average hourly wages rose 3.4% year-over-year in May, Statistics Canada said, unchanged from the pace seen in April.
Meanwhile, the Conference Board forecast the economy will grow by 1.5% this year as uncertainty surrounding U.S. trade policies continues to weigh on business and consumer confidence.
The latest outlook assumes current tariff levels will remain in place until the end of 2026, at which point negotiations for a new North American trade deal and the arrival of U.S. midterm elections see restrictions largely dropped.
While Canadian exporters have turned to new markets with some success, the gains have so far been insufficient to offset the decline in exports to the U.S., the report said.
The Conference Board isn’t calling for a recession to hit Canada, but Renner said the economy will likely face a contraction in the second quarter as tariffs bite.
Growth should then pick up a bit as “muted momentum” returns to the economy, he said.
Housing market slow, seeing reduced demand
Housing activity has been largely depressed this year as fears of job losses sideline would-be buyers, the board said.
Renner said there might be a bit of a rebound in home sales starting next year, but those same immigration slowdowns will also soften buyer demand in the housing market.
The Bank of Canada kept its benchmark interest rate steady at 2.75% in its past two decisions as it waits for more clarity on how tariffs are affecting inflation and the wider economy.
The central bank can lower its policy rate when it wants to stimulate spending and give the economy a boost but keeps it elevated when there are fears of inflation getting out of hand.
Annual inflation held steady at 1.7% in May, Statistics Canada said.
Rate cut hopes dim as inflation holds
Economists pointed to some marginal improvement in the Bank of Canada’s preferred measures of core inflation, but not enough to convince financial markets a rate cut would be coming at the central bank’s next decision on July 30.
The Conference Board expects the Bank of Canada will deliver one more quarter-point cut in the second half of the year.
Renner said that with some signs of stubbornness on the inflation front and no clear collapse materializing in economic data, the risks are calling for fewer cuts at the moment.
“If we see higher tariffs on Canada, we see the economy weaken more, then at that point, we think the Bank of Canada will have more interest in cutting rates further,” he said.
“But for now, really, the risks seem to be tipping towards higher inflation and the economy just barely hanging on. And I think right now, the bank is probably a little more worried about inflation.”
StatCan is set to report fresh economic data for June with jobs numbers on Friday and inflation figures coming next week.
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