Resilient economy faces tariff risks; Canada bonds favoured as AI buildout reshapes global markets
Canada is heading into 2026 with modest economic momentum and surprising resilience despite the shock of shifting US trade policies, according to BlackRock’s latest global outlook.
However, the report notes slower hiring and persistent inflation which continue to cast shadows over the growth path ahead.
Canadian GDP slipped in the second quarter of 2025, but consensus still points to 1.2% growth this year and a similar pace next year. Unemployment remains near multi-year highs around 7%, and core inflation is stuck at the upper end of the Bank of Canada’s 1–3% target.
With the US remaining the destination for nearly three-quarters of Canadian exports, the new tariff era remains the biggest risk. Even though effective tariff rates on Canadian goods are among the lowest globally (roughly 5-6%), BlackRock warns that further negotiations on the USMCA ahead of its 2026 review could be pivotal.
The Bank of Canada has already cut rates by 100 basis points this year to 2.25%, easing mortgage strain in a housing market more sensitive to rate shifts than the US, but Canada’s central bank is expected to remain cautious, keeping rates unchanged to avoid further pressure on the loonie.
BlackRock’s strategists have a split view on Canadian asset performance. While Canadian equities have risen 28% this year, driven heavily by gold producers, which make up roughly three-quarters of the materials sector, they maintain only a neutral stance on domestic shares due to Canada’s small technology sector and high exposure to US trade.
Meanwhile, longer-term Canadian government bonds are favoured over US Treasuries. Canada’s stronger fiscal footing should help keep long yields anchored even as US debt servicing pressures rise.
BlackRock’s broader 2026 Global Outlook emphasizes that AI has become the defining force for global markets, pushing investment decisions toward high-conviction positioning. The report argues that technology is now shifting from capital-light to capital-intensive, with AI spending expectations between US$5-8 trillion globally through 2030.
That scale of investment is already straining power supply and AI-related data centres could demand 15-20% of current US electricity consumption by 2030. BlackRock portfolio manager Alastair Bishop notes: “Companies haven’t struggled to get chips — the real constraint is land and energy.”
US-China rivalry is also intensifying and Tom Donilon, Vice Chairman at BlackRock warns: “The US and China AI race will define both economic and military advantage this century.”
BlackRock highlights several strategic openings for Canada, including expanding beyond US export dependency, increasing defense spending as Arctic security concerns rise, and capitalizing on AI-energy investments like data centres. Success will depend heavily on execution and the ability to attract enough private capital to support a major infrastructure buildout.
BlackRock remains pro-risk globally and overweight US equities tied to AI, but sees Canada primarily as a defensive complement in fixed income. Canada has avoided the worst of US trade turbulence so far.
Whether that continues may depend on the outcome of the next round of cross-border negotiations and how effectively the country turns long-term structural themes into sustained growth.
