Key Takeaways
- The Canadian economy is expected to slow down in 2026 due to the ongoing trade war and U.S. tariffs.
- The federal government’s plans to spend billions on major projects will pay off in the long run, but it will take time.
- Deloitte expects the Canadian economy to grow by 1.5% in 2026, down from 1.7% in 2025.
- The trade war and tariffs will continue to impact the economy, leading to a drop in demand and potential job losses.
- The review of the Canada-United States-Mexico Agreement (CUSMA) in July 2026 will be a pivotal event for the economy.
Introduction to Canada’s Economic Outlook
Canada’s economy will likely experience a slowdown in 2026 as the trade war and U.S. tariffs continue to impact the country. According to Deloitte’s latest economic outlook, titled "Reset over resolutions," the Canadian economy will see some modest growth this year, but it will be less than in 2025. The report highlights that the federal government’s plans to spend billions on major projects to boost the economy will pay off in the long run, but it will mean having to hit "the reset button" first. This means that the economy will need to undergo a structural transition, which will take time.
Government Spending and Economic Growth
The federal government has outlined a handful of major projects aimed at creating new economic sectors and boosting the capacity of current ones, including in energy and natural resources like oil and gas, infrastructure, mining and minerals, as well as advanced technology. This is in addition to billions in defence spending to meet NATO targets. Deloitte says that it will likely take some time before these investments pay off for Canada’s economy. In the near-term, spending on defence and assistance for sectors hard-hit by U.S. tariffs will provide some support for the economy. However, the uncertain backdrop will keep both consumers and businesses hesitant about materially increasing spending.
Economic Growth and Productivity
According to Deloitte’s report, the firm expects the Canadian economy to grow by a total of 1.5% in 2026, which is down slightly from expectations of 1.7% growth in 2025. Deloitte says that "Canada must take bold steps to improve productivity." Economic growth, in this context, is measured by Gross Domestic Product (GDP), which is the total sum of all goods and services produced within a nation in a given period. The most recent GDP report showed the economy shrank 0.3% in October compared to September. The Bank of Canada had a similar outlook in the summary from its last interest rate announcement, when it forecasted "moderate" GDP growth for this year.
Impact of Trade War and Tariffs
Deloitte expects 2026 to see a few more weak GDP reports as the trade war and tariffs are likely to continue taking bites out of what Canada is trying to produce and export. The October GDP report noted how the manufacturing of wood products dropped 7.3% in the month as a result of U.S. tariffs imposed on imports of some lumber products. This marked the biggest decline in the sector since April 2020. The impact of these tariffs is a drop in demand, which sometimes results in job losses, as was seen most recently with Algoma Steel planning to lay off about 1,000 workers.
Job Market and Unemployment Rate
On the jobs front, Deloitte says that businesses are likely to hire fewer new workers in the first half of 2026 because of a drop in demand for goods and services. Despite this, the unemployment rate is still expected to fall as the federal government curbs immigration, which will help to reduce the number of people looking for work. The future of trade deals with other countries, especially the United States, will be one of the most important events to follow this year from an economic perspective.
Review of CUSMA and Buy Canadian Movement
The review of the Canada-United States-Mexico Agreement (CUSMA) in July 2026 will be a pivotal event for the economy. Changes to the agreement that restrict or eliminate access to the U.S. will have dire consequences. Although CUSMA is set for a formal review in July, discussions with trade partners could begin by mid-January. In the meantime, Deloitte says that the Buy Canadian movement will be an important piece of the economic puzzle for Canada’s long-term strength. This movement will help to support Canadian businesses and products, which will be crucial in the face of ongoing trade tensions.
