Outlook for Canada's tourism economy in 2025
The Canadian economic landscape for 2025 is fraught with uncertainty.
One of the key factors contributing to this unpredictability are the tariffs on Canadian goods from the American administration. As a result, the Canadian dollar has already lost value against the U.S. dollar.
While uncertainty might slow overall economic growth, it could have a silver lining for the tourism sector. That’s because a weaker currency makes foreign tourism cheaper. It also makes it less likely that Canadian tourists will go abroad.
Let’s take a look at the tourism economy in Canada and its outlook for the year ahead to understand what it could mean for entrepreneurs.
The tourism sector accounted for 1.55% of Canadian GDP over the first three quarters of 2024.
The size and composition of the Canadian tourism economy
The tourism economy in Canada is composed of multiple industries. As of the first three quarters of 2024, the sector’s GDP was distributed as follows:
Figure 1: Industry contribution to the Canadian tourism economy
|
Transportation |
21% |
|
Accommodation |
27% |
|
Food and beverage services |
16% |
|
Other tourism-related goods and services |
36% |
The table shows that the transportation industry makes up 21% of the tourism sector, accommodation accounts for 27%, food and beverage services for 16% and all other tourism-related goods and services account for 36% of the sector’s GDP.
Together, these industries accounted for 1.55% of Canadian GDP.
The tourism sector is also a significant source of employment for many people. In the first three quarters of 2024, 690,000 Canadians were working in the tourism sector, representing 3.3% of total employment.
Canadians and foreigners support the tourism sector
Tourism is fuelled by both Canadians travelling within the country (domestic demand) and by foreign visitors travelling to Canada (foreign demand).
Given its proximity to the United States, it is no surprise that most foreign visitors come from south of the border.
In 2023, Americans made up 77.9% of foreign visitors to Canada but accounted for only 50.7% of their total expenditure. This discrepancy is largely due to shorter stays, as many U.S. visitors are only here for same-day trips.
Figure 2: Number of trips and travelling behaviour of U.S. and non-U.S. visitors to Canada, 2023
Source: Statistics Canada, Trips, nights and spending for visitors to Canada, Table: 24-10-0064-01
U.S. residents had more trips than non-U.S. residents visiting Canada. However, on average, they spent less time in Canada and spent less money while in Canada.
Ontario emerged as the most popular destination for tourists, attracting 46.9% of foreign visitors between January and November 2024, followed by British Columbia and Quebec.
Figure 3: Foreign visitors by province and territories, 2024
Source: Statistics Canada, Non-resident visitors entering Canada—seasonally-adjusted, Table 24-10-0051-01
Almost half of all foreign visitors to Canada went to Ontario. 28% went to British Columbia and 14% went to Quebec. The other 11% went to all the other provinces and territories.
While foreign visitors are important contributors to tourism in Canada, Canadians actually represent the biggest share of the demand for tourism businesses—about 76% of the demand is coming from Canadians.
What can tourism entrepreneurs expect in 2025
The tourism sector experienced steady growth for a decade before the pandemic. Travel restrictions related to COVID-19 had a major negative effect on the sector, which has been steadily recovering since travelling resumed.
As of the third quarter of 2024, the industry had not yet fully recovered to pre-pandemic levels, but we could witness a more dynamic market in 2025.
Figure 4: Tourism GDP in Canada (in $million, 2017 constant prices)
Source: Statistics Canada, Tourism gross domestic product, Table: 36-10-0234-01
Starting in Q1 2010, there was constant growth in the value of goods and services sold by the tourism industry in Canada until the dramatic fall caused by the COVID-19 in 2020. The sector still hasn’t recovered from the peak of 2019.
One major factor influencing the tourism sector is the exchange rate. Depreciation of the Canadian dollar against the U.S. currency makes Canada a more attractive destination for American tourists, while simultaneously making international travel more expensive for Canadians.
This dynamic is expected to encourage more domestic travel among Canadians and attract more foreign visitors, especially from the United States.
Over the last 40 years, we can observe a strong correlation between the strength of the U.S. dollar and tourism demand from foreigners. When the U.S. dollar gains value, foreign tourists spend more in our tourism industries.
Figure 5: Relationship between foreign tourism demand and the CAD per USD exchange rate, 1986 to 2024
Source: Statistics Canada, Tourism demand in Canada, Table: 36-10-0230-01 and Bank of Canada
There is a correlation between the CAD to USD exchange rate and the amount of money spent by foreign tourists in Canada. Foreign tourists tend to spend more in Canada when the CAD is lower against the USD.
We can also observe that there are fewer Canadians travelling abroad when the value of the U.S. dollar increases.
However, the impact on Canadian tourism spending is not as clear.
Domestic tourism demand in Canada seems more dependant on economic cycles than on the value of its currency. Meaning Canadians should travel less abroad in 2025 with the weakness of the Canadian dollar, but how much they will spend in our own tourism industries will depend on the overall performance of the Canadian economy.
Figure 6: Relationship between Canadians travelling abroad and exchange rates
Source: Statistics Canada, International travellers entering or returning to Canada, Table: 24-10-0054-01 and Bank of Canada
Note: Measured as the number of Canadian residents returning to Canada
Canadians tend not to travel abroad as much when the CAD to USD exchange rate is lower for Canadians.
Cautious optimism for tourism in 2025
The 2025 outlook for the tourism sector in Canada is cautiously optimistic.
A devalued Canadian dollar could provide a significant boost to the sector by attracting more foreign visitors and their spending.
However, the performance of the Canadian economy will also influence the sector as a substantial part of the tourism sector relies on Canadians travelling within the country. Ongoing economic uncertainty could affect the spending of Canadians at home, but the tourism sector should still see stronger demand from foreign tourists in 2025.