Key Takeaways
- Canada’s economic growth is expected to be more resilient than feared in 2025, with a stronger-than-expected bounce-back in Q3.
- Per-capita GDP is on track to post an increase in 2025 for the first time in three years, indicating a positive trend for household-level economic indicators.
- The unemployment rate is expected to drift lower in 2026, with trade policy stability, monetary easing, and fiscal policy tailwinds supporting growth.
- Provincial economies will experience differentiated impacts from tariffs and demographic shifts, with resource-dependent regions outperforming trade-exposed ones.
- Key factors supporting Canada’s per-capita growth include trade policy stability, monetary easing, fiscal policy tailwinds, global growth supporting commodity prices, and softer but still positive U.S. growth.
Introduction to Canada’s Economic Outlook
Canada’s economic trajectory has been quietly shifting constructively in 2025, with encouraging signs of recovery after years of underperformance despite significant international trade uncertainty and aggressive U.S. tariff hikes in some sectors. The country’s total gross domestic product growth has proven more resilient than feared, thanks in part to upward revisions to output prior to the imposition of U.S. tariffs earlier in the year, as well as a stronger-than-expected bounce-back in Q3 that more-than-reversed a Q2 decline.
Household-Level Indicators
The improvement in per-capita GDP represents a significant milestone, as it indicates a positive trend for household-level economic indicators. International trade dominated 2025 concerns, but per-capita GDP had already declined for two consecutive years in 2023 and 2024, with the unemployment rate rising 2 percentage points from early-2023 lows by the end of 2024. However, the reverse is now happening, with curbs on temporary resident arrivals lowering consumer numbers and labor supply simultaneously, which is expected to reduce total GDP growth but not significantly impact per-capita GDP and unemployment.
Key Factors Supporting Canada’s Per-Capita Growth
Several key factors are supporting Canada’s per-capita growth, including trade policy stability, with the exemption from U.S. tariffs for most Canadian exports remaining critical. Monetary easing, with Bank of Canada rate cuts supporting growth, and fiscal policy tailwinds, with government budget deficits ramping up, are also contributing to the positive trend. Additionally, global growth is supporting commodity prices, and softer but still positive U.S. growth is maintaining a floor under commodity prices and supporting revenue inflows into Canada’s natural resource sectors.
Provincial Overview
Canadian provinces will experience differentiated impacts from tariffs and demographic shifts, with resource-dependent regions outperforming trade-exposed ones. Trade-exposed provinces in central Canada, such as Ontario and Quebec, face mounting pressures, while resource-dependent provinces, such as Alberta and Saskatchewan, are expected to maintain leadership positions. Atlantic Canada shows diverging performance, with New Brunswick trailing the national average, while Nova Scotia, Prince Edward Island, and Newfoundland and Labrador remain above average.
Provincial Economic Outlooks
Each province has its unique economic outlook, with British Columbia expected to post modest growth of 1.2% next year, lagging the national average. Alberta’s growth is expected to moderate slightly to 2.3% from an upwardly revised 2.6% expected this year, while Saskatchewan’s economy is expected to remain among the fastest-growing provinces in 2026, with real GDP projected to grow 2.1%. Manitoba’s economy is expected to grow 1.3% in 2026, slightly lower than the upwardly revised 1.4% forecast for 2025, while Ontario will enter 2026 on better footing than anticipated, with an unexpectedly strong Q3 prompting a slight upgrade to the 2025 and 2026 growth forecast.
Conclusion
In conclusion, Canada’s economic growth is expected to be more resilient than feared, with a stronger-than-expected bounce-back in Q3 and a positive trend for household-level economic indicators. The country’s per-capita GDP is on track to post an increase in 2025 for the first time in three years, and the unemployment rate is expected to drift lower in 2026. While provincial economies will experience differentiated impacts from tariffs and demographic shifts, key factors such as trade policy stability, monetary easing, and fiscal policy tailwinds will support growth. Overall, there is reason for cautious optimism about Canada’s economic outlook, despite ongoing uncertainty about the country’s future trade relationship with the U.S. and slower population growth weighing on aggregate output.