Canada’s economy will expand more slowly than previously expected this year, with growth hampered by trade uncertainty and cautious business investment, according to a forecast released Wednesday by Deloitte Canada.
The consulting firm now expects GDP to grow 1.5% in 2026, marking a downgrade from its earlier projection of 1.7%. Chief economist Dawn Desjardins frames the outlook as a split-year scenario, with weakness concentrated in the opening months.
“I’d say we’re really looking for a pretty slow start of the year, accelerating in the second half, somewhat,” Desjardins said.
Trade uncertainty looms as the primary headwind. The scheduled July review of the Canada-United States-Mexico Agreement creates what Deloitte describes as a pivotal moment for the economy. Companies will likely delay major investment decisions until the trade pact’s future becomes clearer, Desjardins said.
Existing US tariffs already burden Canadian steel, aluminum, lumber and automobile sectors. These trade barriers have dampened business confidence and will constrain hiring through mid-year, according to the report. Deloitte expects employers to add fewer positions during the first half of 2026 as consumer and business demand softens.
Business investment is a critical variable in the forecast. Deloitte anticipates corporate spending will remain subdued until after the July trade review, then rebound in the third and fourth quarters. Federal government commitments to support infrastructure and natural resource projects could accelerate this turnaround, the firm said.
Desjardins maintains cautious optimism about the trajectory beyond 2026. Momentum building through the second half of this year should create favorable conditions for stronger growth in 2027, she said.
Monetary policy will remain stable, according to Deloitte’s projections. The Bank of Canada will hold its benchmark rate at 2.25% throughout 2026 rather than implement increases, Desjardins said. Current economic conditions do not justify rate hikes.
“We’re not seeing an economy that is running so hot that we have to be worried about a big build up in inflation pressures,” Desjardins said.
The firm’s baseline forecast assumes Canada will maintain its current trading relationship with the United States after the CUSMA review, though changes that restrict market access remain a downside risk.
Growth patterns will vary significantly across provinces. Alberta and Saskatchewan will post the strongest expansion at 2.1%, boosted by resource development and construction. British Columbia will grow more modestly at 1.6% as forestry sector challenges persist.
Labor market conditions will stabilize near current levels, Deloitte projects. Reduced immigration will slow labor force expansion while businesses generate fewer new jobs, keeping the unemployment rate roughly flat.
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