OTTAWA: A new economic outlook from Deloitte Canada suggests that the Canadian economy is entering a period of “slow growth mode,” with projections for 2026 revised downward. According to the report titled “Reset over Resolutions,” Canada’s GDP growth is expected to slow to 1.5% in 2026, down from the 1.7% recorded in 2025. This deceleration is largely attributed to ongoing trade wars, U.S.-imposed tariffs, and a cautious spending environment among both consumers and businesses.
The report highlights several critical challenges and shifts that will define the economic landscape over the coming year:
- Trade Uncertainty and CUSMA: The upcoming review of the Canada-United States-Mexico Agreement (CUSMA), scheduled for July, remains a pivotal moment. While Deloitte’s baseline assumption is that Canada will maintain its favorable trading relationship, the potential for restrictive changes poses a significant risk to market access.
- Impact of Tariffs: U.S. tariffs continue to weigh heavily on key Canadian exports, particularly in the forestry (lumber) and manufacturing sectors. This has led to a “wait-and-see” approach from private investors, stifling business investment in the short term.
- Federal Strategy and Defense Spending: To counter these headwinds, the federal government is focusing on long-term structural transitions. Significant investments in energy, mining, infrastructure, and advanced technology are expected to bear fruit eventually. In the near term, increased defense spending to meet NATO targets and federal assistance for tariff-hit sectors are expected to provide a necessary cushion for the economy.
- Labor Market and Immigration: While job creation may start slowly in 2026, the report suggests that the federal government’s decision to reduce immigration targets could paradoxically help stabilize the unemployment rate by balancing the labor supply with cooling demand.
- Interest Rate Outlook: With inflation expected to remain near the 2% target, economists anticipate the Bank of Canada will maintain its policy rate at approximately 2.25%, which may eventually make borrowing more attractive and spur a recovery in the latter half of the year.
Deloitte Chief Economist Dawn Desjardins noted that while the start of 2026 may be difficult, there is room for “cautious optimism.” If the current federal investments gain momentum, the second half of 2026 could set a stronger foundation for a more robust recovery in 2027.
