Canada’s economy will likely slow down in 2026 as the trade war and U.S. tariffs continue to bite, but there may be some light at the end of the tunnel, according to Deloitte.
The financial consulting firm released its latest economic outlook for 2026 on Wednesday, titled “Reset over resolutions,” which says the Canadian economy will see some modest growth this year, but it will be less than in 2025.
The report says that the federal government’s plans to spend billions on major projects to boost the economy will pay off in the long run, but it will mean having to hit “the reset button” first.
“From improving infrastructure to eliminating trade barriers to internal trade and reducing regulatory hurdles, Canada is hitting the reset button,” said Dawn Desjardins, chief economist at Deloitte Canada, in the report.
Prime Minister Mark Carney outlined a handful of these major projects in 2025, which are aimed at creating new economic sectors and boosting the capacity of current ones, including in energy and natural resources like oil and gas, infrastructure, mining and minerals, as well as advanced technology.
This is in addition to billions in defence spending to meet NATO targets.
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Deloitte says it will likely take some time before these investments pay off for Canada’s economy.
“It is unreasonable to expect government to stimulate this structural transition quickly, which means that the economy is likely to remain in slow growth mode until the latter part of 2026.”
“In the near-term, spending on defence and assistance for sectors hard-hit by U.S. tariffs will provide some support for the economy. The uncertain backdrop, however, will keep both consumers and businesses hesitant about materially increasing spending.”
According to Deloitte’s report, the firm expects the Canadian economy to grow by a total of 1.5 per cent in 2026, which is down slightly from expectations of 1.7 per cent growth in 2025.
Deloitte says, “Canada must take bold steps to improve productivity.”
Economic growth, in this context, is measured by Gross Domestic Product, or GDP. That’s the total sum of all goods and services produced within a nation in a given period, and these reports are usually released a few months after the fact.
The most recent GDP report showed the economy shrank 0.3 per cent in October compared to September. The Bank of Canada had a similar outlook in the summary from its last interest rate announcement, when it forecasted “moderate” GDP growth for this year.
Deloitte expects 2026 to see a few more weak GDP reports as the trade war and tariffs are likely to continue taking bites out of what Canada is trying to produce and export.
In the October GDP report, Statistics Canada noted how the manufacturing of wood products dropped 7.3 per cent in the month as a result of U.S. tariffs imposed on imports of some lumber products. This also marked the biggest decline in the sector since April 2020.
With these tariff impacts come a drop in demand, which sometimes results in job losses, as was seen most recently with Algoma Steel planning to lay off about 1,000 workers.
On the jobs front, Deloitte says businesses are likely to hire fewer new workers in the first half of 2026 because of a drop in demand for goods and services.
Despite this, the unemployment rate is still expected to fall as the federal government curbs immigration, which will help to reduce the number of people looking for work.
Deloitte also notes how the future of trade deals with other countries, especially the United States, will be one of the most important events to follow this year from an economic perspective.
Changes to the agreement that restrict or eliminate this access to the U.S. will have dire consequence.”
Although CUSMA is set for a formal review in July, Carney said in December 2025 that discussions with trade partners could begin by mid-January.
In the meantime, Deloitte says the Buy Canadian movement will be an important piece of the economic puzzle for Canada’s long-term strength.
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