Key Takeaways:
- Canada’s economic growth is hindered by a high regulatory burden, and the government is working to reduce red tape in 2026.
- Despite a strong economy, many Canadians still live in poverty, and policy changes are needed to address this issue.
- Immigration is expected to slow down in 2026, which could exacerbate labor shortages in certain sectors.
- The Canadian government is investing in emission reduction policies, but the scope and breadth of these policies are unclear.
- Canada’s road network is fiscally unsustainable, and cities lack the fiscal capacity and autonomy to address this issue.
- The government is investing in AI, but the pace of digitization has stalled, and transformational investments are needed to close the digital gap.
Introduction to Canada’s Economic Outlook
Canada survived the first year of the second Trump presidency with its economy and sovereignty intact. As the country looks to 2026, economists, analysts, and investors are weighing in on the key charts that will shape the country’s economic future. One of the main concerns is the high regulatory burden that has held back business investment and economic growth. Despite two separate red-tape reduction initiatives, the number of federal regulations has increased by 37% since 2006, growing nearly twice as fast as in the U.S. Prime Minister Mark Carney has pledged to change this, with every federal department and agency reviewing regulations for inefficiencies and a new Red Tape Reduction Office overseeing the process.
The Reality of Poverty in Canada
Many people still think of poverty as something that happens when people don’t work. However, the reality is different: the majority of people who live in poverty in Canada are working or live in families who work. Forty-two percent of persons who live in poverty live in working poor families, i.e., families who work 500 hours or more in a year. This challenges the misconception that poverty doesn’t happen to people who work and suggests that work alone is not enough to escape poverty in Canada. If real progress on poverty is to be made in 2026, policy changes are needed to strengthen employment regulations, encourage employers to provide higher wages and better working conditions, and improve the adequacy and accessibility of income supports, particularly for persons with disabilities.
Immigration and Labor Shortages
Ottawa is expected to keep its foot on the immigration brakes in 2026 as it works to rein in unsustainable population growth. By the government’s own projections, growth will slow sharply over the next two years as temporary resident numbers are pared back through a mix of departures and status transitions. The pivot toward an immigration plan anchored in economic potential is a step in the right direction, but the adjustment carries risks. Collateral damage could be most pronounced in sectors in which labor shortages are structural – particularly in care-related roles. Earlier policy choices have left Canada ill-prepared for an aging society, and an abrupt pullback now risks amplifying gaps in areas of high need.
Emission Reduction Policies
There are a total of 335 active emission mitigation policies (announced and proposed) from governments across the country as of October 2025, based on the Canadian Climate Policy Inventory. These policies are a mix of mandatory actions, abatement support funding, and other supporting measures that do not directly incentivize abatement but may contribute to emission reductions. Counting the number of policies does not measure their ambition, rigor, or success, but it does inform us about the scope and breadth of government actions. The impetus for emission reduction by all orders of government is decidedly more carrot than stick, with 69 (21%) of the 335 policies being federal policies.
Canada’s Road Network
Quebec’s roads are, on average, the worst in Canada, with 10% of urban municipally-owned roads presenting a risk to public safety and requiring major work or replacement. Another 18% are rated as poor or barely serviceable. Quebec is far from unique, with almost every province having at least 40% of city roads in fair, poor, or very poor condition. Canada’s road network is fiscally unsustainable, and cities lack the fiscal capacity and autonomy to address this issue. New York, Milan, and London have addressed this fiscal imbalance through congestion charges, but Toronto, Montreal, and Vancouver are unlikely to follow.
The Future of Zero-Emission Vehicles
Zero-emission vehicle (ZEV) sales fell sharply in 2025, dropping by more than 50% from 2024 levels. This collapse comes as federally mandated ZEV targets require increasing sales starting in 2026, culminating in 100% ZEV sales in 2035. If ZEV sales don’t rebound, complying with the mandate could force automakers to pull hundreds of thousands of internal combustion engine and hybrid vehicle sales from Canada each year. An immediate course correction is required before the ZEV mandate drives consumers and the auto industry off a cliff.
The Digital Gap
The Canadian government is all in on AI, with the appointment of the first AI Minister and over 80 references to the technology in the 2025 federal budget. However, the reality facing the government is harsher, with the pace of digitization in the government having stalled over the past 20 years. Canada has fallen from 6th place in the UN e-government ranking in 2003 to 47th place in 2024. If the federal government is serious about AI, it must be willing to make transformational investments to close the existing digital gap before it can credibly talk about being at the forefront of government applications of AI.