Canada Key Themes 2026: Policy shifts are prompting structural change

Below is an abridged view of our 2026 Canada Key Themes analysis. To view the full report, please complete the form on the right.

2026 Canada key theme 1

US-Canada trade policy at a crucial fork in the road

Renegotiation of the USMCA will be pivotal for Canada’s economic prospects in 2026, and beyond.

Our current baseline forecast assumes most US tariffs on Canada will be removed by the third quarter of 2026 as the USMCA is renegotiated. We anticipate 10% targeted US tariffs will remain for steel and aluminium products, protectionist levies that weren’t in place prior to US President Donald Trump’s second term. This means the prevailing 6.3% US effective tariff rate on Canadian goods will drop to around 1% and kick off a recovery in trade that helps support stronger economic growth beginning in H2 2026. However, this sanguine expectation for the USMCA’s renegotiation is looking increasingly tenuous.

2026 Canada key theme 2

Major fiscal stimulus in a growth-focused federal agenda

Canada is set to receive a significant fiscal boost in 2026. The federal government’s growth-focused agenda includes large deficit-financed capital spending, nation-building projects, internal free-trade initiatives, and efforts to diversify exports beyond the US.

We estimate the fiscal impulse will be more than 2% in 2026, the largest since 1980, save for during the 2020 pandemic. These new actions in the 2025 budget will initially boost the level of real GDP by about 0.4ppts on average between 2026-2028.

2026 Canada key theme 3

The Bank of Canada is not coming to the rescue

Monetary policy will play a limited role in supporting growth in 2026. The Bank of Canada (BoC) has set the stage for a prolonged pause, and we expect it will hold rates through 2026 as it contends with a weak economy, shifting US trade policy, and significant fiscal stimulus.

2026 Canada key theme 4

Demographic shift is crossing a key threshold

Canada’s updated immigration plan will slightly shrink the population, with far-reaching consequences for the economy in the year ahead.

According to StatCan’s preliminary estimates, the population decreased by more than 76,000 from July 1 to October 1, 2025, mainly due to a drop in non-permanent residents. This was the first quarterly decline since 1946 (aside the 2020 pandemic), and we expect the population will continue to decline over the next two years as more non-permanent residents leave the country.

2026 Canada key theme 5

Underlying imbalances linger, but green shoots for productivity and business investment

Underlying imbalances linger, but green shoots for productivity and business investment.

Long-standing structural challenges, including high household debt, overvalued housing, and years of underinvestment, will continue to weigh on Canada’s growth outlook. However, 2026 could represent an inflection point for business investment and productivity growth, assuming a US-Canada trade deal ends the trade war and uncertainty wanes.

Healthy corporate balance sheets and favourable borrowing conditions mean firms should have ready access to the capital needed to finance Canada’s long-awaited investment renaissance.

Canada 2026 economic outlook: A year of adjustment and opportunity

Taken together, these themes point to a year of continued adjustment for the Canadian economy. Growth will remain constrained in the near term, but policy choices, especially around trade, fiscal strategy, and investment, will determine whether Canada can lay the foundations for stronger, more sustainable growth beyond 2026. 

Our Canada Key Themes 2026 report explores these issues in detail, including scenario analysis around US trade policy and the implications for growth, inflation, and investment. To request access to the full report, please complete the form.