Deloitte Canada's summer economic outlook, released Thursday, projects the Canadian economy will grow just 0.7 per cent in 2026 before expanding to two per cent in 2027. The report notes that while the economy is stagnating, it is not contracting, and identifies a combination of government investment and restored business confidence as the real opportunity for growth.
Trade Frictions Remain Top Risk
U.S. trade frictions continue to be the primary risk to Canada's economy, according to the report. With less than a week until the July 1 deadline for renewing the Canada–United States–Mexico Agreement (CUSMA), there is little expectation of a deal. If no agreement is reached, the trade pact will undergo annual reviews until it expires in 2036. Currently, CUSMA shields an estimated 95 per cent of Canadian goods from U.S. tariffs.
Deloitte predicts a slow recovery for exports, assuming the effective U.S. tariff rate on Canadian goods remains at today's relatively low level. Exports are expected to grow 0.8 per cent in 2026 and strengthen to 2.4 per cent in 2027.
Recessionary Conditions Not Met
Dawn Desjardins, Deloitte Canada's chief economist, said in an interview that while Canada experienced negative GDP in the last two quarters, the depth of the decline is not very deep and the number of industries contracting is limited. She noted that recessionary conditions are characterized by at least a couple periods of negative GDP, but added, “the other thing is the depth of the decline, which is not very deep at this moment, and also the number of industries it’s touching, where we are seeing a contraction in economic activity. There, it’s just not lining up in terms of a recession.”
Government Investment as a Growth Driver
The report identifies two sources of real opportunity for economic growth. The first is governments pushing forward with spending on infrastructure, defence, critical minerals and resources. Desjardins said this will start a growth cycle that filters through the economy. After government fixed investment surged 7.3 per cent last year, Deloitte expects a tamer 3.7 per cent gain this year, though Desjardins noted it is still “higher than any other number we’ve ever seen.”
Deloitte expects the Bank of Canada to hold its benchmark interest rate at 2.25 per cent for the rest of 2026 as it contends with competing pressures.
Restoring Business Confidence
The second piece is restoring business confidence. Desjardins said the government needs to move quickly on policies and tax incentives that give companies the green light to invest. “What we’re looking for is some of the hurdles to business investment being reduced,” she said. “And by that I mean looking at things like the interprovincial trade barriers, zoning — all of the things that really inhibit businesses’ ability to get a return on their investment in a relatively quick manner.”
