As the calendar turns to 2026, the Canadian economy is navigating a complex landscape of persistent and emerging challenges. While the nation avoided a technical recession in 2025 despite significant headwinds—primarily a trade war with the United States—economic momentum is slowing. Gross domestic product (GDP) growth is losing steam, and the labour market, though resilient, contends with an elevated unemployment rate of 6.5 per cent. The resilience shown so far is now tested by new risks that threaten to undermine stability and growth in the coming year.
The Looming CUSMA Review and Trade Uncertainty
A paramount risk for 2026 is the scheduled review of the Canada-United States-Mexico Agreement (CUSMA), set for July. This tri-national evaluation introduces profound uncertainty, which is already dampening business investment within Canada. The trade pact, which is due to expire in 2036, includes a clause for a review every six years, allowing any member country to withdraw with six months' notice.
U.S. Trade Representative Jamieson Greer has suggested the possibility of abandoning the three-country pact in favour of separate bilateral deals with Mexico and Canada. This stance creates significant anxiety for Canadian exporters, who currently enjoy a crucial carve-out: nearly 90 per cent of Canada's exports enter the U.S. market tariff-free under CUSMA rules, shielding them from a potential U.S. blanket tariff of 35 per cent. The Bank of Canada noted in its October forecast that the average U.S. tariff on Canadian goods currently sits at 5.9 per cent.
International trade lawyer Lawrence Herman, a senior fellow at the C.D. Howe Institute, warns that the review provisions heavily favour the United States. "There is no way the Americans are going to agree to CUSMA continuing into 2036, even with some improvements," Herman stated, highlighting the Trump administration's aversion to broad-scope trade agreements.
Greer has signalled key targets for the negotiation, including Canada's dairy supply management system and the Online Streaming Act, which regulates U.S. tech giants. The outcome of these talks will directly impact a vast segment of the Canadian economy.
Artificial Intelligence Sector Volatility
Beyond trade, a second major risk stems from the growing volatility within the artificial intelligence (AI) sector. As a significant and rapidly evolving segment of the technology landscape, instability in AI could have a dual impact. First, it poses a threat to the stock market, where many AI-focused companies are highly valued. Second, and more critically for everyday Canadians, a downturn or correction in the AI sector could precipitate a weakening job market, affecting both specialized tech roles and adjacent industries.
Persistent Economic Headwinds
The third overarching risk is the continuation of the general economic fragility that marked the end of 2025. While a recession was narrowly avoided, the economy is operating without its previous robust momentum. The elevated unemployment rate indicates ongoing slack in the labour market, and slowing GDP growth suggests underlying vulnerabilities. This environment makes the economy more susceptible to shocks, whether from failed trade negotiations, a tech sector correction, or other unforeseen global events.
In summary, the Canadian economic outlook for 2026 is clouded by a trifecta of significant risks. The July CUSMA review represents a direct threat to the nation's export framework and business confidence. Concurrently, the volatility of the AI sector introduces potential financial and employment instability. These specific challenges are set against a backdrop of an economy already showing signs of fatigue. How policymakers and business leaders navigate these converging threats will be crucial in determining whether Canada can sustain its resilience and return to a stronger growth trajectory in the years ahead.
