Market Update: We break down the business implications, market impact, and expert insights related to Market Update: Canada 2026 economic outlook – Full Analysis.
The impact of tariffs
The impact of tariffs on the economy nevertheless marked the last year. Canadian steel exports declined by 25%, while those of aluminum dropped by 6% and those of the automotive sector by 5%. Furthermore, the Canadian economy has not yet fully felt the effects of the tariffs recently imposed on the lumber and kitchen cabinet sectors.
The good news, however, is that the impact was limited, especially in sectors affected by tariffs. This is evident in the fact that growth in the rest of the economy has offset the effect of tariffs and prevented a recession.
The job market has also strengthened, with 180,000 jobs created in the last three months of 2025, resulting in a decrease in Canada’s unemployment rate to 6.5% in November. The number of jobs even increased in the manufacturing sector, which was hit the hardest by tariffs.
What can we expect in 2026?
The Canadian economy will continue to evolve in a highly uncertain context, once again dominated by tariffs and the USMCA’s renegotiation—scheduled for July—which will continue to impact our exports negatively. These trade tensions are also likely to dampen businesses’ enthusiasm for investment.
Thus, consumer spending will once again be the primary driver of economic growth in Canada in 2026. Year after year, household consumption accounts for about 60% of GDP. The demand for goods and services plays a more crucial role in the current context, serving as a stabilizing factor for the Canadian economy.
This consumer spending is supported by interest rates that have reached their lowest level in a year. Another important factor is our relatively strong job market, which, combined with wage increases, contributed to a boost in household disposable income in 2025. However, part of this increase has been allocated to savings, which should also raise consumer spending over the next year. Finally, consumer spending will also be buoyed by the fact that inflation remains within the Bank of Canada’s target range, namely close to 2%.
Governments will likewise do their part, as expansionary budgets will also contribute to economic growth.
Government and consumer spending will therefore fuel Canadian economic growth in 2026, albeit at a slower pace due to the impact of tariffs and trade tensions.