Toronto, Canada’s economy is projected to rebound towards the end of 2026, with expected growth of 0.7 percent after experiencing weak activity in the first quarter, according to Deloitte Canada’s summer outlook released on Thursday. Dawn Desjardins, the chief economist at the consulting firm, noted several factors contributing to the current economic challenges, including trade tensions, high energy costs, supply chain issues, and low consumer confidence. Nonetheless, she anticipates a recovery with growth totaling two percent in 2027.
Desjardins expressed optimism that clarity on critical economic issues will lead to an acceleration in business investment, thereby creating jobs. She pointed out that the current softness in Canadian consumer confidence is tied to concerns regarding financial stability and job security. However, as conditions improve, she believes a stronger economic message will emerge for 2027.
In her report, Desjardins outlined two primary assumptions that could enhance business confidence moving forward. First, Canada must maintain “relatively tariff-free” access to the U.S. market, although some sectors, such as steel and aluminum, may still face tariffs. Second, anticipated government policy changes aimed at restoring business sentiment—such as reducing interprovincial trade barriers and increasing spending on major infrastructure projects—are expected to play a significant role in the recovery.
The report indicates that while Canada’s economy is stagnating, discussions about a recession may be overstated. Statistics Canada reported in May that economic growth halted in the first quarter, marking a second consecutive quarterly decline in real gross domestic product and fitting the technical definition of a recession. However, many economists, including Bank of Canada Governor Tiff Macklem, have suggested that this situation should not be labeled a recession. The C.D. Howe Institute’s business cycle council, known for determining recession periods, also stated that it's too premature to make such a classification.
Deloitte Canada concurred with this assessment, with Desjardins mentioning in her report that there is little evidence of a widespread recession manifesting within the economy. She pointed out that only certain sectors, such as steel and aluminum—specifically affected by tariffs—are experiencing contraction. “A recession is typically pervasive, prolonged, and deep across the economy, and based on these criteria, we do not believe we are in a recession,” she stated.
The report also highlights unresolved trade issues with the U.S. as the most significant risk to Canada’s economic outlook. The Canada-U.S.-Mexico trade agreement (CUSMA) is approaching a renewal deadline on July 1. If renewed, it would extend the agreement’s expiration date to 2042, while a failure to renew it may result in annual reviews over the next decade. The impact of losing tariff-free access to the U.S. would severely affect Canadian exports and confidence, as previous models from Deloitte have illustrated significant economic losses from such a scenario.
On the positive side, achieving clarity in trade negotiations could reduce uncertainty and potentially improve conditions for sectors currently facing high tariffs. For 2026, business investment is predicted to remain subdued as companies adopt a cautious approach until trade situations stabilize. However, Desjardins forecasts an improvement in business investment by 2027, driven mainly by government policy initiatives that aim to unlock private capital and expedite project approvals.
The economic agenda set forth by Prime Minister Mark Carney includes infrastructure investments to enhance trade and reduce dependency on the U.S. This agenda also encompasses the establishment of a major projects office to accelerate the review processes for significant national projects. The report emphasizes that the real opportunity for growth lies in a combination of government investments in infrastructure, defense, and critical minerals, alongside other supportive measures like tax incentives, removing internal trade barriers, reskilling workers, and investing in artificial intelligence.
While higher energy prices, influenced by the ongoing conflict in the Middle East, have benefitted Canadian energy producers, Desjardins indicated that the overall effect on consumers and businesses has been negative. She forecasts that energy prices will begin to ease, a trend that appears to be developing according to futures markets. Additionally, Statistics Canada noted a rise in the annual inflation rate to 3.2 percent in May, which is the highest rate recorded since December 2023. However, Governor Macklem remarked that there is no evidence of a generalized inflationary environment despite the surging price pressures observed last month.
In summary, the Deloitte report suggests that while Canada is navigating through economic stagnation, signs of recovery are anticipated, contingent upon trade clarity and supportive government measures. As the situation continues to evolve, the focus on strategic investments and policy changes will be critical in shaping the economic landscape for Canadian businesses and consumers alike.
