In this week’s The Seven…

• Pins and needles - Trump 2.0 begins
• How is this even possible? Population soars again in Calgary
• Divergence explained - Housing and oil pull Alberta’s economy ahead 
• Countdown to the next BofC rate decision
• Interesting Fact: More than meets the eye - The U.S. trade deficit with Canada
• Chart of the Week: What accounts for the U.S. trade deficit?

Buckle up. Next week Donald Trump takes office, the federal government is looking at tariff counter measures, and we’re just over a week away from the Bank of Canada’s first rate decision of 2025. We unpack this today and look at some of the latest population and housing data.

Trump 2.0 era begins

Trump talk has kicked into high gear leading into next week. We’ll find out what happens soon with the inauguration scheduled for Monday and the federal government said to be preparing its own countermeasures if Trump carries through with his plan.

In the meantime, we’ve been considering potential tariff impacts. In our view, a sweeping 25% tariff held through 2025 would push Canada and Alberta into a recession. In our December scenarios for Alberta, we estimate that real GDP moves 4.5% below the base case forecast by 2026, while employment is 83K below the base case by 2026 (52K lower in 2025).

For Alberta in particular, much depends on what happens to energy (82% of the province’s exports to the U.S. in 2023). As we noted, the trade deficit that Trump often cites as a problem is driven by oil and gas (see the section on the U.S. trade deficit below). Yet, as we argued, Canada’s oil and gas exports to the U.S. enable it to run energy surpluses with other countries. A tariff on energy would be a loss to both countries (higher energy prices for U.S. consumers, wider discounts on Canadian crude for producers).

The Energy Team at ATB Capital Markets has done an analysis of who in the oil and gas sector would be most impacted. While all oil and gas producers will be impacted, they estimate that integrated and condensate producers will outperform. Energy service companies could be impacted through a pullback in upstream capital investment. If tariffs become a structural feature, light oil could be more impacted due to easier substitution with U.S. light crudes.

Beyond energy, all export sectors have some level of exposure (see the chart below). One of the more diversified trading sectors is agriculture and food. But even farmers with non-U.S. customers will feel the pinch from reduced demand and prices for their products with counter-tariffs threatening to raise input costs.

Calgary leads in population growth…yet again

We all know what’s been happening to Alberta’s population growth—it’s been booming.

But what about the regions? The numbers for sub-provincial areas like cities and counties take longer to come out with Statistics Canada finally releasing the estimates up to July 1 of 2024 earlier this week.

Zeroing in on Alberta’s two largest metro areas, we find that the Calgary Census Metropolitan Area (CMA) led again, growing 6% and accounting for nearly half (49%) of total population growth in the province.

Our view remains that housing affordability is driving migration patterns to Alberta, particularly from higher-price markets in B.C. and Ontario. We also argued that, as the Calgary housing market became more expensive, we’d see more balanced population growth across the province as buyers were drawn to less-expensive markets such as Edmonton.

Despite the spike in Calgary’s population, some rebalancing did take place. Population growth in the Edmonton CMA picked up to 4.7% (from 3.9% in 2023), and growth outside the Calgary and Edmonton metros also accelerated to 2.2% (from 1.6%).

Heading deeper into 2025, we see more rebalancing. With many Canadians struggling with affordability (consumer prices remain elevated and many mortgages are resetting at higher rates), we think buyers and renters will be lured into less expensive markets. Further, international migration is slowing, which will disproportionately be felt by the major centers (where the vast majority of international migrants reside).

More on recent sub-provincial population trends in a forthcoming Twenty-Four.

Divergence explained

Speaking of home construction, it is one of the big factors pushing economic growth higher in Alberta than other provinces. The other major factor is oil production. With the Trans Mountain Expansion coming online, oil production is driving export growth in Alberta (and nationally). We are tracking Alberta real GDP growth last year at 2.5% versus about 1.2% nationally.

It’s sticky - U.S. inflation proving stubborn

This week’s data report on U.S. inflation was mixed. Price growth was softer than many were expecting, but still elevated at 2.9% year-over-year. However, core readings eased, suggesting some cooldown in underlying pressures.

In the December dot plot, the median estimate by Fed officials suggests there may only be two rate cuts this year.

There have been concerns that potential tariffs could stall inflation progress, or even worsen the situation. The Peterson Institute for International Economics has upped its estimates based on the possibility of an even larger tariff, and the Federal Reserve minutes suggest the Fed could also move more slowly lowering rates due to new policies.

Clock ticking on Bank of Canada’s next  interest rate announcement

January 20 (U.S. Inauguration Day) is not the only date to watch. Put January 29 on your calendars, when the Bank of Canada makes its first interest rate decision of 2025.

More importantly, the Bank will be releasing a new forecast with its quarterly Monetary Policy Report (MPR). The timing is fascinating, as Trump will officially be in office, and like the rest of us forecasters, the Bank will be trying to incorporate potential Trump actions. Our bet is that it won’t fully incorporate potential tariffs, but we’ll be looking for a special feature illustrating the impacts in case they are. They did something on this in the July 2019 MPR.

The Bank will need to balance the inflationary impacts of tariffs with the drag this will exert on the economy. Counter-tariffs would raise prices at home, something the Bank can’t ignore and could cause it to delay further cuts. Expect a ‘wait and see’, ‘data dependent’ approach given the fast moving situation.

We are currently assuming three quarter-point cuts in the first half of 2025. The first cut could occur as early as January 29, with a soft December inflation reading next week increasing the odds.

Interesting Fact…U.S. trade deficit with Canada (more than meets the eye)

Donald Trump has said the U.S. is “losing $200 billion to Canada.”  It’s unclear where that number comes from, but presumably it includes the trade deficit with Canada and, according to an official, a portion of U.S. military spending.

There are a couple ways to calculate the trade deficit—on a customs basis and a balance of payments (BOP) basis. For those keen to learn more, here’s a backgrounder. The main point is the BOP basis (based on ownership of the products) is what’s typically used to describe the deficit by the U.S. Census Bureau and Statistics Canada.

On this basis, the total U.S. trade deficit in goods and services with Canada was US$40.6 billion in 2023 according to the U.S. Census Bureau. We don’t yet have a final tally for 2024, but in the first three quarters it was US$24.7 billion.

Digging deeper, that’s entirely driven by energy. Excluding oil and gas, the U.S. runs a trade surplus with Canada. As we’ve noted, a trade deficit in energy with Canada enables the U.S. to run an energy trade surplus with many other countries. In 2023, U.S. exports of crude oil surpassed 4 million barrels per day (b/d), up from only 0.13 million in 2013. That same year, the U.S. imported 3.9 million b/d of crude oil from Canada, more recently hitting a record of 4.4 million b/d. While the U.S. remains a net importer of crude oil, it has emerged as a major net exporter of total energy (including natural gas and petroleum products) since 2019.

Chart of the Week: What accounts for the U.S. trade deficit?

Donald Trump does not like trade deficits. If his main concern is the size of the overall U.S. trade deficit, it’s worthwhile understanding where that comes from and Canada’s contribution to the total deficit picture.

Canada is neck-and-neck with Mexico as America’s largest trading partner based on total merchandise trade (exports plus imports). Yet in 2023 (the latest full year of data available), Canada accounted for only 5% of the total US$785 billion deficit—with nine other countries running larger deficits with the U.S., as shown in the Chart of the Week.  

Answer to the previous trivia question: The first day of classes at the University of Lethbridge was September 11, 1967.

Today’s trivia question: When did Grant MacEwan College and Mount Royal College become universities?