Deloitte downgrades Canadian growth outlook for 2026, warning of 'slow start' to year
Deloitte Canada has downgraded its growth expectations for 2026, forecasting Canadian gross domestic product (GDP) will rise by 1.5 per cent this year, compared to its previous forecast of 1.7 per cent.
“I’d say we’re really looking for a pretty slow start of the year, accelerating in the second half, somewhat,” said chief economist Dawn Desjardins.
Desjardins attributes this outlook to continued uncertainty with the global economy and the risks associated with the upcoming review of the Canada-United States-Mexico Agreement (CUSMA), scheduled for July.
Deloitte expects business investment to remain subdued for the first half of this year, with a rebound in the third and fourth quarter as businesses get greater clarity after the CUSMA review.
“Coupled with strong signals from the federal government to support private-sector investment, particularly in infrastructure and natural resources, the stage is set for a potential rebound in business investment later this year,” the report said.
New projects approved by the Major Projects Office and improvements to pipeline capacity by Trans Mountain are expected to contribute to this improvement in confidence.
The report also forecasts subdued hiring intentions by businesses in the goods-producing and service-producing industries, but the jobless rate is expected to fall due to slowing population growth.
“We’re not seeing that labour force growth that we’ve become so accustomed to, and at the same time, we do think that the pace of job creation will be relatively muted,” said Desjardins. “It’s kind of characterizing it as a year of two halves, and where we got that softness in the first half and somewhat better activity in the second half, and looking to 2027, to see some stronger momentum building.”
Desjardins said she expects the Bank of Canada to hold its policy rate at 2.25 per cent for all of 2026, in contrast to some economists who expect the central bank to hike interest rates in the second half of 2026.
“We’re not seeing an economy that is running so hot that we have to be worried about a big build up in inflation pressures,” she said. “I think the (Bank of Canada) governor (Tiff Macklem) says this all the time, when we’re going through these structural changes in our economy, monetary policy is not going to be able to suddenly do to do a lot of that heavy lifting.”
The forecast also highlights housing as one area of the Canadian economy that could see improvements this year, with federal and provincial initiatives expected to lift housing starts compared to last year.
“After several years of sluggish growth, the resale market is also expected to gain momentum now that the Bank of Canada’s easing cycle has ended,” the report said.
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