In a significant revision to its economic outlook, Deloitte Canada has downgraded its growth projection for the country in 2026. The firm now forecasts that Canada's gross domestic product (GDP) will expand by 1.5 per cent this year, a reduction from its previous estimate of 1.7 per cent.
A Year of Two Halves: Slow Start Expected
Dawn Desjardins, chief economist at Deloitte Canada, characterized the coming year as one of "two halves." She anticipates a pretty slow start to the year, with economic activity accelerating only in the second half. This cautious outlook is attributed to persistent uncertainty in the global economic landscape and specific risks tied to a major international agreement.
"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," Desjardins stated, setting the tone for her analysis of monetary policy.
Key Risks: Global Uncertainty and CUSMA Review
A primary factor dampening the early-year outlook is the scheduled review of the Canada-United-States-Mexico Agreement (CUSMA), set for July 2026. Desjardins notes that this event is likely to keep business investment subdued through the first and second quarters, as companies await greater clarity on the future of the crucial trade pact.
However, the report suggests a rebound is possible in the latter half of the year. "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 Deloitte analysis said. Specific projects, such as those approved by the Major Projects Office and capacity improvements on the Trans Mountain pipeline, are expected to bolster business confidence.
Labour Market and Monetary Policy Outlook
The forecast also presents a nuanced view of the labour market. Deloitte expects subdued hiring intentions across both goods-producing and service-producing industries. Despite this, the national unemployment rate is projected to fall, driven primarily by a slowdown in population growth rather than robust job creation.
"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," explained Desjardins.
On monetary policy, Deloitte's view diverges from some other economists. Desjardins expects the Bank of Canada to hold its policy rate steady at 2.25 per cent for all of 2026. This contrasts with forecasts calling for a potential rate hike in the second half of the year. She aligns this stance with Bank of Canada Governor Tiff Macklem's reported view that monetary policy cannot shoulder all the burden during periods of significant structural economic change.
A Bright Spot: Housing Market Momentum
One sector identified for potential improvement is housing. The report indicates that federal and provincial initiatives could lead to an increase in housing starts compared to 2025. Furthermore, the resale market is expected to gain momentum now that the central bank's cycle of interest rate cuts has concluded, offering a glimmer of positive activity after several years of sluggish growth.
Looking beyond 2026, Deloitte anticipates stronger economic momentum building into 2027, contingent on the resolution of current uncertainties and a rebound in business investment.
