Economists in a Bloomberg survey have sharply reduced their 2026 growth forecast for Canada to just 0.7 per cent, following a surprise economic contraction in the first quarter. If realized, this would be the weakest annual expansion since 2015, excluding the COVID-19 pandemic.
Sharp downward revision from earlier expectations
The new forecast marks a significant downgrade from the previous estimate of 1.2 per cent growth. Canada's economy shrank at an annualized rate of 0.1 per cent in the first three months of 2026, missing analysts' expectations for a 1.5 per cent expansion. The contraction was partly driven by an unexpected drop in federal defence spending, and while small, it represented a second consecutive quarterly decline, meeting one technical condition of a recession.
Recession label rejected despite weak data
Most economists and the Bank of Canada have rejected the recession label for the downturn. However, mounting damage from U.S. trade policy and an abrupt slowdown in immigration of non-permanent residents have contributed to weaker growth. The ongoing uncertainty surrounding the Canada-United States-Mexico trade agreement continues to dampen business optimism.
Second-quarter rebound expected
Despite the weak start, analysts have revised their second-quarter growth forecasts higher. They now expect the economy to expand at a 1.9 per cent annualized pace from April through June, up from an earlier estimate of 1.4 per cent. The improvement reflects some stabilization in economic activity after the first-quarter slump.
Investment outlook cut amid trade uncertainty
Economists have also lowered their outlook for gross fixed capital investment, now projecting growth of just 0.4 per cent in 2026, down from a previously expected 0.8 per cent gain. The lingering uncertainty about the trade agreement's fate continues to weigh on business investment decisions.
Inflation and unemployment forecasts steady
Inflation forecasts remain largely unchanged. Analysts see the consumer price index rising at an average pace of 2.6 per cent in 2026 before slowing to the Bank of Canada's two per cent target in 2027. The unemployment rate is expected to peak at 6.7 per cent in the second and third quarters of this year, then decline to six per cent by the end of 2027.
Bank of Canada rate path unchanged
Forecasters expect the Bank of Canada to hold its policy rate at the current 2.25 per cent for the remainder of 2026, with a rate hike anticipated in the second quarter of 2027. The central bank has maintained its stance despite the weak growth, focusing on inflation management.
The survey of 28 economists was conducted between June 19 and 24, 2026.
