Trade Uncertainty Paralyzes Canadian Businesses as Top Economic Threat for 2026
In a recent interview with the Financial Post, Douglas Porter, the chief economist at BMO Capital Markets, highlighted that the pervasive uncertainty surrounding the renegotiation of the Canada-United-States-Mexico Agreement (CUSMA) is the foremost risk to Canada's economy in 2026. Porter described this trade ambiguity as having effectively 'frozen' many Canadian businesses, creating a chilling effect on investment and expansion plans.
Economic Outlook and Central Bank Predictions
Despite this significant headwind, BMO anticipates modest economic growth for Canada in 2026. Porter noted that the housing market is expected to remain 'pretty quiet' throughout the year, reflecting broader caution in the economic landscape. The interview also delved into monetary policy, with Porter revealing that BMO economists predict the Bank of Canada will maintain its current interest rates for the entirety of 2026.
If any adjustment were to occur, Porter suggested a rate cut would be more probable than an increase, indicating a dovish stance amid the economic uncertainties. This outlook comes as the Bank of Canada has already held rates steady for two consecutive meetings, signaling a period of stability in monetary policy.
Broader Economic and Political Context
The discussion extended beyond domestic issues to include international factors, such as the nomination of Kevin Warsh by former U.S. President Donald Trump for the Federal Reserve chair position. This adds another layer of complexity to the global economic environment that Canadian businesses must navigate. Porter emphasized that the trade uncertainty is not just a minor concern but a central issue that could stifle economic momentum if not resolved.
Key points from the interview include:
- Trade uncertainty, particularly around CUSMA, is the top risk to Canada's economy in 2026.
- BMO forecasts modest economic growth and a subdued housing market for the year.
- The Bank of Canada is expected to keep interest rates unchanged, with a potential cut if any move is made.
- International developments, like U.S. Federal Reserve appointments, contribute to the economic landscape.
Overall, Porter's analysis underscores the critical need for clarity in trade agreements to unlock business confidence and drive Canada's economic future forward. The 'frozen' state of businesses due to this uncertainty poses a substantial challenge that policymakers must address to ensure sustained growth.
