Strained US trade ties and weak global demand leave Canada limping toward next year
Canada’s economy is poised for only lukewarm growth in 2026 with international trade pressures and a global oil surplus weighing heavily on performance.
RSM Canada’s latest outlook notes that federal budget measures will lend a hand to household spending and employment but stresses that this support “is not a panacea for the broader pressures on the Canadian economy” particularly the hit from softer export demand.
The firm projects real GDP to expand roughly 1.4% next year, supported by around 1.6% growth in household consumption and a 1.3% increase in business investment. Meanwhile, employment gains are expected to be similarly restrained and the unemployment rate could ease from around 7.0% to 6.7%, offering only marginal relief for workers and limited momentum for wage growth.
Inflation remains above the Bank of Canada’s 2% target, meaning rate cuts are unlikely to bring meaningful stimulus without risking renewed pricing pressures. RSM Canada says fiscal policy will therefore remain the primary tool for economic support.
As 2026 approaches, the picture painted by the outlook is one of an economy moving forward, but just barely, with growth constrained, paycheques under pressure, and policymakers struggling to balance stability with stimulus.
Summarizing the key findings of the report:
External trade and tariff shocks
- Ongoing trade frictions, particularly between Canada and the US, continue to undermine export demand, weigh on overall productive capacity and squeeze profit margins. As a result, Canada may be undergoing more than a cyclical slowdown; the economy appears to be undergoing a structural hit.
Weak labour-market dynamics and flat wage pressure
- Demand for labour has softened, with many available workers in excess; a dynamic that is expected to limit wage growth even if employment ticks up. With labour costs under pressure, broader consumption growth could remain constrained.
Sticky inflation and constrained monetary-policy leeway
- Consumer goods prices rising above the central bank’s target ~2%. That reduces the ability of the Bank of Canada to ease rates aggressively without risking renewed inflation. That means monetary policy may have only limited capacity to offset external headwinds, forcing greater reliance on fiscal or structural measures.
Vulnerability to oil-price and commodity-price swings
- The 2026 outlook is also sensitive to global commodity conditions. The ongoing oil-glut, for instance, could suppress export values and reduce national income from resource sectors. A sharper-than-expected drop in commodity prices would worsen the external-demand shock.
Eroding financial-market and credit conditions
The report cautions that “financial conditions … are slowly deteriorating” in Canada, which could curtail business investment and raise borrowing costs, a drag on growth and business expansion. With modest economic growth and trade headwinds, credit-dependent sectors could face tighter financing and lower profitability.
Dependence on fiscal policy and government intervention
- Given the limits on monetary stimulus, future economic performance may hinge heavily on government budget measures — infrastructure spending, public investment, and fiscal stimulus. Should such fiscal support be delayed, neutered, or insufficient, the baseline scenario could deteriorate further.
Risk of persistent structural drag, not just cyclical softness
- RSM argues that Canada is likely undergoing structural changes — not merely a short-term slowdown. Tariffs and trade disruption may lead to a permanently lower growth path. That means even a return to “normal” global conditions might not restore previous growth levels fully, making the coming years a prolonged test of resilience.
