Our economic outlook for Canada

Canada starts 2026 navigating a familiar set of geopolitical hazards that continue to shape, and sometimes complicate, its domestic economic outlook. Recent easing of select tariff disputes with China have added to frictions with the United States, while trade-related economic uncertainty is suppressing business investment.

Despite these disruptions, the Canadian consumer appears poised to maintain the strength that anchored much of the economy’s resilience in 2025. January’s labor force data show the unemployment rate falling to 6.5%, not because of robust hiring but due to a contraction in labor force participation—an early sign of the demographic slowdown expected to shape the next few years. Rising full-time employment, real wage growth, limited job losses, and positive wealth effects from the financial markets should keep a solid floor under consumption, helping offset soft business investment.

Fiscal policy will add a modest tailwind through targeted sectoral initiatives and ongoing infrastructure programs. Paired with expectations for above‑trend global growth, we forecast Canada’s real GDP to expand by 1.8% in 2026. Core inflation eased through late 2025, giving the Bank of Canada (BoC) room to cut rates by a cumulative 100 basis points last year. (A basis point is one-hundredth of a percentage point.)

However, with inflation still slightly above target and underlying wage growth proving sticky, policy now appears firmly set at neutral. The BoC held its policy rate at 2.25% in January 2026, striking a balanced tone as it weighs softer hiring against gradually improving macro conditions. Barring an unforeseen shock, we see little rationale for additional rate moves in either direction this year.