Deloitte Canada forecasts subdued 2026 growth before a rebound, if trade clarity arrives
Canada's economy is forecast to grow just 0.7% in 2026 before rebounding to 2% in 2027, as trade uncertainty and soft consumer confidence weigh on near-term activity, Deloitte Canada said Thursday in its summer economic outlook.
Dawn Desjardins, chief economist at Deloitte Canada, said resolution of key trade and policy uncertainties will be the central trigger for recovery.
"As we get some clarity on some of these key issues impacting our economy, we do think that we will see business investment accelerate and this will create jobs," she said.
"This will also help Canadian consumers feel better because right now Canadian consumer confidence is also pretty soft and it's soft because people are worried about their financial future, they're worried about their jobs."
Why it's stagnation, not recession
Canada recorded two consecutive quarters of declining real GDP — technically meeting the definition of a recession — but Deloitte rejected that characterisation.
"When we think about a recession, it's usually pervasive across the economy, it's prolonged … and it's also deep and all these metrics, we just don't feel we're there," Desjardins said.
The weakness remains concentrated in tariff-exposed sectors including steel, aluminum, and lumber.
Bank of Canada senior deputy governor Carolyn Rogers pushed back firmly on any rush to apply the recession label in full. "Two quarters of annualized contraction in GDP does meet one definition of a recession. But simply the fact that you have to put the term 'technical' in front of it sort of tells you that you need to really look past that one indicator," Rogers previously said.
Charles St-Arnaud, chief economist at Servus Credit Union, argues that the widely used two-quarter rule is "overly simplistic" and risks mischaracterising what is actually happening in the Canadian economy.
For mortgage brokers, suppressed growth without a full recession means buyer demand is delayed, not destroyed. BMO senior economist Sal Guatieri warned in June that "it's the economic uncertainty — both related to the trade war and the Iran war — that will likely keep a lot of buyers, especially first-time buyers, on the sidelines," he told Canadian Mortgage Professional.
The CUSMA deadline and what lies ahead
Deloitte cited unresolved US trade tensions as Canada's biggest economic risk. The Canada–United States–Mexico Agreement (CUSMA), which shields an estimated 95% of Canadian goods from US tariffs, is approaching a July 1 renewal deadline. A failure to extend the agreement would trigger annual reviews until 2036.
St-Arnaud previously warned that the outcome would be the summer's most consequential risk for trade. "We have bigger concerns coming up this summer with the review of CUSMA," he said. "That will be more consequential in terms of what's going to happen with tariffs."
Deloitte identified two growth drivers for the longer term: government investment in infrastructure, defence, and critical minerals — with fixed government investment projected to rise 3.7% in 2026 after surging 7.3% in 2025 — and unlocking private capital through tax incentives, the removal of interprovincial trade barriers, and AI and re-skilling investment, policies expected to pull forward deferred business spending in 2027.
On inflation, Canada's annual rate rose to 3.2% in May, its highest since December 2023. With oil prices easing below US$70 per barrel after surging above US$100 in late April, Desjardins said the shift should provide some relief to household budgets in the months ahead.
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