Key Takeaways
- Canada’s GDP growth is expected to remain modest at roughly 1.2 per cent in 2026, reflecting persistent uncertainty tied to trade policy and geopolitical risk.
- The upcoming CUSMA review and unpredictable U.S. political dynamics are expected to keep business confidence and capital investment constrained.
- Consumer spending remains uneven, with higher-income households driving strength in travel and luxury goods while lower-income consumers face wage and employment pressures.
- In a low-growth environment, stock selection is expected to matter more than broad index performance, with company execution and balance sheet strength taking priority.
- Transportation, engineering and industrial firms with strong backlogs and diversified exposure may benefit despite subdued industrial production.
Introduction to Canada’s Economic Growth
Canada’s economic growth is expected to remain modest in 2026, with a GDP growth rate of roughly 1.2 per cent. This is due to the ongoing uncertainty tied to trade policy and geopolitical risk. Chris Murray, managing director of institutional research at ATB Capital Markets, believes that the upcoming CUSMA review and unpredictable U.S. political dynamics will keep business confidence and capital investment constrained. As a result, investors may need to focus more on company fundamentals than broad economic trends.
Consumer Spending and Its Impact on the Economy
Consumer spending remains a crucial aspect of Canada’s economy, and it is expected to be uneven across different income levels. Higher-income households are driving strength in travel and luxury goods, while lower-income consumers face wage and employment pressures. This so-called K-shaped consumer trend is expected to continue, with some U.S. retailers noting that consumers are trading down in certain areas. However, travel demand remains very healthy, and luxury vehicles have been a bright spot despite a tighter automotive market.
Selective Opportunities in a Low-Growth Environment
In a low-growth environment, stock selection is expected to matter more than broad index performance. Company execution and balance sheet strength will take priority, and investors will need to be selective in their investments. Chris Murray believes that transportation, engineering, and industrial firms with strong backlogs and diversified exposure may benefit despite subdued industrial production. For example, Air Canada is one of the stocks that he favors, with a $32 price target and an outperform rating. The company is well-positioned to benefit from strong travel demand, particularly from baby boomers and Canadians traveling both internationally and domestically.
Upside in Specific Companies
Chris Murray also sees upside in companies such as AtkinsRéalis, the engineering firm, and NFI Group, the bus manufacturer. AtkinsRéalis is expected to benefit from the broader backdrop of increased focus on building and infrastructure in both Canada and the U.S. The company’s organic growth has been strong, running in the high single digits, and mergers and acquisitions are expected to become more significant again this year. NFI Group, on the other hand, is expected to have a strong recovery in earnings, with backlogs at record levels and funding conditions supportive.
Conclusion and Outlook
In conclusion, Canada’s economic growth is expected to remain modest in 2026, with a GDP growth rate of roughly 1.2 per cent. The ongoing uncertainty tied to trade policy and geopolitical risk will keep business confidence and capital investment constrained. However, selective opportunities may emerge in a low-growth environment, particularly in transportation, engineering, and industrial firms with strong backlogs and diversified exposure. Investors will need to be selective in their investments, focusing on company fundamentals and balance sheet strength. With the right strategy, investors can navigate the challenges of a low-growth environment and find opportunities for growth and returns.
