Executive Summary
Canada is entering a period of slow growth, high debt, and persistent fiscal deficits that echo Japan’s “lost decades”, but with a key difference: abundant natural resources. While Japan’s stagnation was fueled by an aging population and scarce resources, Canada has energy, minerals, and a growing population, providing opportunities for investors who focus on hard assets and government-supported sectors.
The 2025 federal budget reinforces this trajectory: $78 billion in deficits, debt-to-GDP over 45%, and a five-year $280 billion capital investment program. Monetary and fiscal policy will likely keep real interest rates low, cementing Canada’s role as a global carry-trade funding currency.Strategic investors should focus on energy, mining, infrastructure, defense, and AI-linked technology, with Alberta emerging as the country’s primary hub for resource and technology investment.
Strategic investors should focus on energy, mining, infrastructure, defense and AI-linked technology, with Alberta emerging as the country’s primary hub for resource and technology investment.
1. Macroeconomic Overview
Canada’s macro fundamentals are under pressure. Productivity remains flat, real GDP per capita has fallen for five consecutive quarters, and interest payments alone now exceed $60 billion annually. Despite high nominal spending, real living standards are eroding, particularly relative to G7 peers.
Population growth is robust with over 1 million newcomers last year, but infrastructure, housing, and urban services lag behind, creating bottlenecks. Immigration is not translating into productivity gains, leaving Canada with growth in population but limited growth in output per person.
Business investment remains near a 20-year low, and foreign direct investment is slowing. Canadian capital increasingly flows abroad, reinforcing the loonie’s role as a “funding currency” for global carry trades. This dynamic benefits international borrowers but reduces domestic purchasing power and competitiveness.
At the same time, climate policy, EV mandates, and net-zero objectives raise costs for companies, creating a fiscal headwind for energy-intensive sectors. The carbon tax is scheduled to reach $170 per tonne by 2030, and compliance costs are rising for manufacturers and consumers alike.
Canada’s real GDP growth lags peers, while nominal growth is maintained primarily through fiscal expansion. This creates a disconnect between headline numbers and actual improvements in living standards; a hallmark of Japan-style stagnation.
2. Stagflation Risk and Japan Comparison
The combination of weak productivity growth, rising costs, and expansive fiscal policy increases the risk of stagflation. Unlike Japan, Canada has natural resources and a growing population, which mitigates some long-term structural risk. But short-term dynamics are challenging:
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- Supply pressures from rapid population growth outpace housing and infrastructure capacity.
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- Cost-push inflation from climate taxes and energy transition policies.
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- Weak private investment limits productivity growth.
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- Low real rates to manage debt service will persist, suppressing returns to savers while supporting borrowers.
Comparison to Japan:
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- Japan had limited natural resources and an aging population, which exacerbated its stagnation.
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- Canada’s natural resources provide export leverage, particularly in energy and mining.
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- Demographically, Canada is expanding, potentially providing labor for growth—but without productivity gains, this population expansion alone may not prevent stagnation.
The result: Canada risks prolonged low real growth, rising prices for essentials, and persistent currency weakness, conditions very similar to Japan’s post-bubble era, but with the upside that strategic natural resource investment can mitigate some risk.
3. Fiscal Policy and 2025 Budget Insights
The 2025 budget continues fiscal expansion while targeting strategic sectors. Key highlights include:
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- Infrastructure: A five-year $280 billion capital plan will support transport, utilities, and northern corridor development, particularly in Alberta. These investments create predictable project flows for construction, engineering, and energy services.
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- Energy: Pipeline expansions, including Trans Mountain and Coastal GasLink, unlock capacity for oil and LNG exports. USD-linked revenues amplify returns in a soft Canadian dollar environment.
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- Mining: The federal budget supports northern critical-minerals corridors. Copper, nickel, lithium, and rare earths are poised to benefit from North American electrification incentives, global demand, and potential M&A consolidation.
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- Defense and AI: Roughly $12 billion is earmarked for defense modernization over the next five years, including aerospace, naval, cybersecurity, and border security programs. Federal R&D credits support AI and advanced technology in logistics, energy optimization, and resource management.
Strategic Takeaway: While the budget maintains headline-level growth, most domestic households and service industries face ongoing cost pressures. Investors must look to sectors benefiting from government-backed capital, hard assets, and global demand.
4. Hard Assets in a Low-Rate Environment
Ongoing fiscal deficits and monetary expansion suggest real rates will remain low, sustaining inflationary pressures. Hard assets become both a hedge and an opportunity:
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- Energy: USD-denominated oil and gas revenues hedge domestic inflation. Pipeline and export infrastructure provides predictable cash flows.
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- Mining: Critical metals for electrification benefit from rising replacement costs. Under-capitalized juniors may be acquisition targets, creating consolidation opportunities.
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- Infrastructure: Transport, utilities, and energy infrastructure gain nominal value with monetary expansion and generate long-duration cash flows.
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- Defense and AI: Government contracts provide high-margin, long-duration revenues insulated from domestic macro volatility.
Alberta is the central hub for these hard-asset opportunities, combining resource abundance, federal infrastructure support, and proximity to U.S. markets.
5. Alberta: Canada’s Strategic Investment Hub
Alberta now represents the convergence of Canada’s most investable sectors:
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- Energy: Oil sands, LNG, and pipelines concentrate the country’s export capacity.
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- Mining: Northern mineral corridors and critical resources are largely Alberta-linked.
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- AI & Technology: Provincial incentives and federal R&D credits create hubs for AI in energy efficiency, logistics, and resource management.
Investors gain multi-sector exposure by focusing on Alberta, benefiting from both natural-resource wealth and government-backed infrastructure and innovation initiatives.s.
6. Sector-Specific Investment Opportunities
- Energy: Pipelines, LNG, and oil production offer USD-linked revenues and nominal protection against inflation.
- Energy: Pipelines, LNG, and oil production offer USD-linked revenues and nominal protection against inflation.
- Infrastructure: Roads, bridges, utilities, and northern corridors provide cash flow visibility, even amid fiscal and macro uncertainty.
- Defense & AI: Modernization programs, AI R&D credits, and cybersecurity projects provide high-margin, long-term revenue streams insulated from cyclical risk.
- M&A Opportunities: Under-capitalized juniors in energy, mining, and technology sectors may be acquired at attractive valuations, creating long-term strategic positions.
7. Investor Recommendations
- Prioritize hard assets with USD-linked revenue streams or inflation protection.
- Focus on sectors benefiting from government capital: energy, mining, infrastructure, defense, and AI.
- Concentrate on Alberta for multi-sector exposure to resource and technology investments.
- Avoid sectors exposed to policy and regulatory cost pressures: high-carbon service industries and domestic EV manufacturing.
- Leverage CAD strategically in carry-trade or hedged positions.
- Consider M&A opportunities in under-capitalized juniors or tech companies positioned to benefit from federal support.
8. Conclusion
Canada exhibits structural characteristics similar to Japan’s lost decades, low growth, high debt, persistent deficits, but its natural resources and young population provide unique investment opportunities. Stagflation risk is real, but tangible, revenue-generating assets, combined with federal capital and innovation spending, create paths for both protection and growth.
Soft growth, soft currency, abundant resources, and Alberta as a strategic hub define the investment landscape. Investors who understand the interplay of fiscal expansion, monetary suppression, and sectoral opportunity can position themselves for superior returns in Canada’s evolving macro environment.
About Moneta
Moneta is a boutique investment banking firm that specializes in advising growth stage companies through transformational changes including major transactions such as mergers and acquisitions, private placements, public offerings, obtaining debt, structure optimization, and other capital markets and divestiture / liquidity events. Additionally, and on a selective basis, we support pre-cash-flow companies to fulfill their project finance needs.
We are proud to be a female-founded and led Canadian firm. Our head office is located in Vancouver, and we have presence in Calgary, Edmonton, and Toronto, as well as representation in Europe and the Middle East. Our partners bring decades of experience across a wide variety of sectors which enables us to deliver exceptional results for our clients in realizing their capital markets and strategic goals. Our partners are supported by a team of some of Canada’s most qualified associates, analysts, and admin personnel.