Deloitte Projects 0.7% GDP Growth in 2026 Before 2027 Recovery
Canada’s economy is forecast to rebound toward the end of this year, bringing growth to 0.7 per cent for 2026 after weak activity in the first quarter, Deloitte Canada said in a summer outlook released Thursday.
Dawn Desjardins, chief economist at the consulting firm, said in the report that several factors have been weighing on the economy, including trade tensions, energy costs, supply chain pressures and lower confidence. However, she is expecting growth to recover next year, totalling two per cent in 2027.
“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 in an interview.
“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 and all of these things come together to a stronger message for 2027.”
Desjardins said there are two main assumptions factoring into the forecast that could help boost business confidence.
The first is that Canada maintains “relatively tariff-free” access to the U.S. market, but some sectors like steel and aluminum may still see levies. Secondly, government policy changes will help to restore business sentiment including through efforts to reduce interprovincial trade barriers and spending on major projects.
The report said Canada’s economy is stagnating, but talk of a recession is exaggerated.
Statistics Canada said in May that economic growth stalled in the first quarter, leading to a second consecutive quarterly decline in real gross domestic product, and meeting the definition of a technical recession.
However, many economists pushed back on calling the weakness a recession. Bank of Canada governor Tiff Macklem has similarly played it down and the C.D. Howe Institute’s business cycle council, the traditional arbiter of a recession, said it is too soon to use the label.
Deloitte agreed.
“In fact, beyond the headline numbers, there’s little evidence that a recession is underway,” Desjardins said in the report.
She said that only certain sectors in the economy are contracting, like steel, aluminum and lumber, which are facing heavy tariffs.
“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 report said that unresolved trade issues with the U.S. remain the biggest risk to Canada’s economic outlook.
The Canada-U.S.-Mexico trade agreement, better known as CUSMA, is nearing the July 1 deadline for renewal.
CUSMA is set to expire in 2036 but a renewal would extend that expiration to 2042. If the parties don’t agree to a renewal, CUSMA will be subject to an annual review for up to 10 years.
“A failure to extend CUSMA or further U.S. tariff escalations would hit Canadian exports and confidence hard. Previous internal modelling by Deloitte shows that losing tariff-free access to the U.S. has a substantial impact on our economy and some output would be lost despite trade diversification efforts,” the report reads.
On the other hand, trade clarity would help to reduce uncertainty, the report said, and there is also a possibility that conditions could improve for sectors currently facing high tariffs.
Desjardins said in the report that business investment is expected to remain subdued this year, with companies largely sitting on the sidelines until the trade situation becomes more clear.
However, she said business investment is set to improve in 2027, due largely to government policy measures aimed at unlocking private capital and the streamlining of project approvals, which are expected to pull forward spending that has been deferred.
Prime Minister Mark Carney’s economic agenda includes plans to invest in infrastructure to boost trade, while diversifying away from the U.S. The strategy has also involved setting up a major projects office to speed up reviews of nation-building projects.
“The real opportunity for growth will come from the combination of governments pushing forward with infrastructure investment, spending on defence, critical minerals and resources. A myriad of government policies including tax incentives, the removal of internal trade barriers, re-skilling of workers, and investments in AI are key to unlocking private investment dollars,” the report said.
Desjardins said that while higher energy prices spurred by the conflict in the Middle East have benefited Canadian energy producers, the overall effect has been negative to consumers and businesses. She said she forecasts energy prices easing during the course of the year, which appears to be already taking place in futures markets.
Statistics Canada said Monday that the annual rate of inflation jumped to 3.2 per cent in May, up from 2.8 per cent in April and notching the highest headline inflation rate since December 2023.
However, Macklem said Tuesday that he’s not seeing evidence of generalized inflation even as price pressures surged last month.
Oil prices have come down in recent months, with crude oil contracts dipping just below US$70 on Wednesday after surging above US$100 per barrel in late April.
“If the futures curves are correct, if we do continue to see these energy prices come down, that will alleviate some of that pressure on household pocketbooks,” Desjardins said.
This article was first reported by The Canadian Press
Daniel Johnson, The Canadian Press
