Growth to remain muted at 1.2% as trade risks and weak demand weigh on recovery
Canada’s economy is expected to turn in a subdued performance this year, with modest expansion overshadowed by persistent trade tensions, geopolitical instability, and cautious consumers, according to Deloitte’s spring economic outlook.
The report highlights an economy struggling to gain traction in the near term, even as conditions are expected to improve later in 2026. Real GDP is projected to rise just 1.2% this year, following a stronger 1.7% gain in 2025.
Deloitte chief economist Dawn Desjardins notes that businesses and households are facing a complex mix of pressures, including elevated energy prices tied to conflict in the Middle East and lingering uncertainty around North American trade rules. At the same time, slower population growth is creating structural challenges for labour supply and demand.
“Canada is working through a softer economic year, with trade uncertainty, higher energy costs, and slowing population growth all weighing on momentum,” she told WP. “Even so, we’re seeing important areas of resilience from major project investments that should help steady the outlook. The second half of 2026 should bring more clarity and a gradual return to stronger growth as key projects ramp up and confidence begins to rebuild.”
Despite the headwinds, policymakers are expected to provide some stability. The Bank of Canada is forecast to hold its benchmark rate at 2.25% through 2026, while government investment and ongoing adoption of new technologies are seen helping to cushion the economy.
Inflation, meanwhile, has cooled but remains uneven. Headline inflation eased to 1.8% in February, with core measures averaging 2.3%, though elevated food prices continue to complicate the path to stability. Overall, inflation is expected to hover near the central bank’s 2% target this year.
Labour market conditions are also expected to remain soft. Hiring has been constrained by weaker domestic demand and trade-related uncertainty, with manufacturing employment particularly under pressure. Wage growth is likely to stay modest, while consumer spending is forecast to rise only gradually.
Housing activity is losing momentum as well. Starts are projected to fall to roughly 243,000 units in 2026, down from about 259,000 last year, as higher construction costs, growing inventories, and weaker buyer confidence dampen new development.
Business investment caution
On the business side, investment remains cautious in the near term, but a pipeline of large-scale projects—including energy and infrastructure developments—is expected to drive stronger capital spending into 2027. Export growth is also forecast to recover modestly, supported in part by easing tariffs on certain Canadian goods and stronger global demand for key commodities.
Regionally, performance will vary widely. Alberta and Saskatchewan are expected to lead growth, benefiting from energy production and resource investment, while Ontario faces one of the weakest outlooks due to its exposure to manufacturing and trade-related tariffs.
Looking ahead, Deloitte suggests the second half of 2026 could mark a turning point—but only if key risks ease. Greater clarity on trade agreements, particularly the upcoming CUSMA review, will be critical to restoring business confidence and unlocking stronger investment.
Still, downside risks remain significant. Ongoing geopolitical tensions, fragile housing markets, and uncertain trade policy could all derail the anticipated recovery, leaving Canada’s economy on a slower path for longer.
