Despite projected growth in its economy, will Canada be even less competitive than the US?

Trump tariffs, Department of Government Efficacy (DOGE) expected to have an impact: experts

Despite projected growth in its economy, will Canada be even less competitive than the US?

The Canadian economy is expected to grow moderately in the first quarter of 2025, according to a recent report.

The country will see a 2.5% economic growth in the first quarter of 2025, following a 3.2% growth in the fourth quarter of 2024, reports the Canadian Federation of Independent Business (CFIB).

“Driven by an increase in long-term small business confidence, private investment rebounded in the last quarter of the year, and the pace is set to pick up in 2025 after a disappointing performance in 2024,” says the CFIB.

Chief executive officers (CEO) globally continue to focus on growth in 2025 despite material challenges and risks ahead, according to a report from The Conference Board.

And nine in 10 Canadian CEOs of large organizations are planning acquisitions over the next three years, with four in 10 considering major transactions that could significantly impact their operations, according to a previous report from KPMG.

Employment numbers, job vacancies

Payroll employment growth is also projected to grow by 2.0% in the first three months of 2025, according to CFIB. This will come after it continued to weaken in Q4, posting a mere 0.1% gain. 

The Q4 2024 private sector job vacancy rate remained almost unchanged at 2.7%, down by 0.9 percentage points on a yearly basis. This represents 378,300 unfilled positions, according to CFIB.

On both a quarterly and yearly basis, businesses with fewer than 50 employees have shown the largest decreases in vacancy rates. However, their rates remain higher compared to larger businesses.

Source: CFIB

On a yearly basis, Manitoba, Saskatchewan, Quebec, and Ontario saw the most notable changes among provinces, and construction and hospitality saw the most significant declines (-1.5) among sectors.

Business will be good for employers in the tourism industry this year, but the industry still faces persistent recruitment challenges, according to one expert.

Red tape and economic growth

Despite the projected economic growth, Canada is facing a huge problem: Red tape, according to another CFIB report.

The cost of regulation from all three levels of government to Canadian businesses totalled $38.8 billion in 2020, according to CFIB.

The total number of hours spent on regulatory compliance by businesses of all sizes in Canada was 731 million hours - the equivalent of nearly 375,000 full-time jobs, it notes.

Now, one expert says that the Canadian government needs to put up its own DOGE solution – just as the US plans to do.

How will the new DOGE impact Canada?

DOGE stands for the Department of Government Efficiency. Though not an official government department, DOGE will act as a presidential advisory commission for US President Donald Trump’s second administration, notes Kenneth P. Green, senior fellow at the Fraser Institute.

Trump plans to put Tesla CEO Elon Musk and American entrepreneur Vivek Ramaswamy in charge of the department.

“A drastic reduction in federal regulations provides sound industrial logic for mass head-count reductions across the federal bureaucracy,” the two wrote recently in the Wall Street Journal. “DOGE intends to work with embedded appointees in agencies to identify the minimum number of employees required at an agency for it to perform its constitutionally permissible and statutorily mandated functions. The number of federal employees to cut should be at least proportionate to the number of federal regulations that are nullified: Not only are fewer employees required to enforce fewer regulations, but the agency would produce fewer regulations once its scope of authority is properly limited.”

Green notes that if the two succeed, Canada will be left further behind.

“If Musk and Ramaswamy achieve these goals, the U.S. could leap far ahead of Canada in terms of regulatory efficiency, making Canada’s economy even less competitive than it is today,” he says.

As outlined in Budget 2024, the government plans to cut public service numbers by roughly 5,000 full-time positions over four years, primarily through natural attrition and hiring freezes.

U.S. tariffs and Canada’s economy

Also, while CFIB projects growth in the Canadian economy, a US tariff on Canadian is not part of the equation, it says. Trump has threatened to slap a 25-per-cent tariff on all products entering the U.S. from Canada and Mexico.

“While we forecast the Canadian economy will remain healthy in the first quarter of the year, the results don't take into the account the looming U.S. tariff threat, the GST/HST tax break, uncertainty around capital gains, among other issues facing small businesses,” says CFIB. “It's important now more than ever to balance the economic environment and create conditions where small- and medium-sized businesses can thrive and compete.”

A strong majority (82%) of Canadian businesses – both exporters to and importers from the U.S. – expect significant impacts on their operations if new tariffs are imposed on Canadian products.

“Given a strong trade relationship between Canada and the U.S., a 25% tariff on Canadian products would likely drive inflation in Canada, causing price hikes and loss of customers, and heavily impact small- and medium-sized businesses already struggling with weak demand,” says CFIB.

Previously, various groups have called on the federal government to take decisive action following Trump’s tariffs threat.

Ottawa could impose its own tariffs on up to $150 billion worth of US imports if Trump puts tariffs on Canadian goods and services, Reuters reports, citing a source familiar with the matter.