By Veeno Dewan
What can we expect in 2026?
2025 was a tumultuous time for the Canadian economy—and going into 2026, it continues to evolve in a highly uncertain environment, once again dominated by the U.S. government’s tariffs and the renegotiation of the USMCA (United States-Mexico-Canada Agreement), which will continue to negatively impact Canadian exports. Trade experts say that going into this year, these uncertainties and tensions around trade are likely to weaken businesses’ enthusiasm for investment. Many economic experts believe that consumer spending will once again be the primary driver of economic growth in Canada in 2026.
Canada’s GDP
Canada’s financial institutions project Canada’s real GDP (Gross Domestic Product) growth for 2026 to be modest, at around 1.0% to 1.6%, slowing from 2025 due to factors such as trade uncertainty, new USMCA renegotiations, volatile tariffs, higher interest rates impacting housing, and weaker U.S. demand. Although increased domestic government spending may offer support, many experts also cite the unpredictable nature of U.S. political and trade strategy under U.S. President Donald Trump as a major factor in how the country will perform economically.
Canadian economic forecasts vary slightly, with some economists expecting moderately higher growth (1.8%) if U.S.–Canada trade tensions ease, while others see it below potential output. Key Forecasts for 2026 include a modest 1%– 1.6% growth according to major Canadian banks such as the Bank of Canada (BoC), Royal Bank of Canada (RBC), Toronto Dominion (TD), and the Bank of Montreal (BMO)
Inflation
The Consumer Price Index (CPI) inflation rate is currently (January 2026) at the Bank of Canada’s 2% target, but underlying core inflation measures have recently been at the top of the Bank’s target range. Looking ahead, moderate economic growth and Canada’s removal of many retaliatory tariffs should see core inflation maintained at the Bank of Canada’s target.
Employment
According to Statistics Canada, the Canadian job market has strengthened recently, with 180,000 jobs created in the last three months of 2025, resulting in a decrease in Canada’s unemployment rate to 6.5% in November 2025. The number of jobs even increased in the manufacturing sector, which was hit the hardest by U.S. tariffs. The Canadian jobless rate for 2026 is projected to trend around 6.6%.
Consumer spending
Consumer spending has helped prop up the economy in 2025. The “Buy Canadian” campaign, launched since the U.S. implemented higher trade tariffs, has helped, as more Canadians spend their shopping and vacation dollars at home rather than in the U.S. In recent years, household consumption has accounted for about 60% of GDP. And the e demand for goods and services plays a more crucial role in the current context, serving as a stabilizing factor for the Canadian economy. This consumer spending is supported by interest rates at their lowest level in a year, but they may rise in the future.
Government spending
With the latest federal budget, Canada has seen significant spending increases in areas such as infrastructure, defense, and support for businesses affected by U.S. tariffs. The result is a budget deficit that went from around $40 billion a year ago to almost $80 billion in 2026. As a share of the economy, that deficit will represent about 2.5% of Canadian GDP this year. Also, as the deficit is running larger, there’s no question that federal government spending has also supported economic growth. However, the aim is to reduce the deficit to 2% in 2026 as the economy improves, according to the Federal Ministry of Finance and the Bank of Canada.
Canadian Businesses Projections
2026 will be another difficult year for many Canadian businesses, as they face significant cost pressures once again. These pressures primarily stem from trade tensions that have led to tariffs and counter-tariffs, as well as shifting supply chains. In addition, the Canadian dollar is expected to remain weak in the coming months. The Business Development Council for Canada (BDC) says slow growth and uncertainty will create challenges for businesses, but new technologies, innovations, and Canada’s new economic priorities will also create opportunities.
Addressing ways to grow and maintain the Economy
Addressing Canada’s structural economic weaknesses will not be quick or easy in 2026. More private investment is key, according to many economic experts. The gap left by low business investment in recent years is large compared with the U.S. since at least 2014. Continuing Fiscal strategies for 2026 include using government investment incentives and spending to boost growth and confidence, thereby accelerating business investment.
One positive is that, while the Canadian economy struggled in 2025, it avoided a severe recession even amid trade tensions. As we enter 2026, the Canadian economy appears to be stabilizing overall, though the outlook varies by region. Provinces such as British Columbia, with less exposure to U.S. trade volatility, for example, Ontario or Quebec, will fare slightly better economically.
Sources – Statistics, Government of Canada, Federal Ministry of Finance, Bank of Canada, BMO Economic reports. TD Economic Forecast Report. Royal Bank of Canada, Canada Business Development Council.
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