Canadian economic growth expected to slow to 1.5% in 2026: Deloitte

A new report forecasts Canadian growth will slow to 1.5 per cent this year from 1.7 per cent in 2025.

Dawn Desjardins, chief economist at Deloitte Canada, said she is cautiously optimistic though that the economy will gain momentum through the second half of the year.    

“Overall growth is probably going to be a bit slower than in 2025. But when we’re thinking about the setup for 2027, if we’re correct about this momentum building in 2026, the second half, I think it sets up nicely for 2027,” she said. 

Desjardins said last year was mired in disruptions and policy uncertainty, but that fears of a significant global economic slowdown “proved unfounded” as a recession in Canada did not materialize.

“Below the surface, however, volatility in trade activity played a bigger-than-usual role in the Canadian economic data and masked a softening in consumption and a pullback in business investment,” the report reads. 

Desjardins said two key trends to watch this year are trade and investment, with the review of the Canada-U.S.-Mexico free trade agreement scheduled for July, and the federal government’s plans to stimulate billions in investment from the private sector outlined in its latest budget.

The report said the CUSMA review will be pivotal, and potential changes that restrict or eliminate access to the key American market present a risk, but her baseline assumption is that Canada will be able to maintain its favourable trading relationship with the U.S.  

“That will alleviate some of this uncertainty. Now, that’s not assured, but it is our assumption. And we aren’t assuming that we’re going to necessarily see tariffs on specific industries go away, so there’s still going to be that impact on the economy,” she said.

Business investment may hit a turning point, Desjardins said, as firms get more clarity on trade and see support from the federal government, particularly in the infrastructure and natural resource sectors. 

Getting more firms to invest could also help improve some of Canada’s long-standing issues around productivity, she said.

“We have to arm our workforce to be able to improve our productivity, our living standards (and) wages,” Desjardins said.

Regarding the health of the consumer, she expects spending to be softer in the first half of the year but says it could ramp-up in the second half if there are also improvements in the labour market.  

“But overall for the year, our numbers don’t show a huge increase in spending. And the other factor, of course, is that we are seeing a population that is not growing,” she said.  

With trade and government spending coming into sharper focus in 2026, many economists, including Desjardins, expect the Bank of Canada to continue to hold its benchmark rate steady at 2.25 per cent. 

The central bank cut borrowing costs four times last year, bringing its key rate down by a total one percentage point.

Bank of Canada governor Tiff Macklem has said the governing council now views the rate as being at the right level to balance growth while keeping inflation in check.      

“Against that environment, you’ve got fiscal policy, which is helping industries that are under pressure, but also looking to invest in the economy. And you also have low interest rates,” Desjardins said. 

“We think that combination will be sufficient to push Canada towards stronger growth in the second half of this year.”  

This report by The Canadian Press was first published Jan. 7, 2026.