As 2025 draws to a close, Canada anticipates a complex economic landscape in 2026, shaped by various sectors from trade and defence to housing and manufacturing. Economists and industry leaders are weighing both opportunities and challenges that lie ahead, and recent discussions shed light on what to expect.
Trade remains a pivotal area of focus, especially concerning Canada’s relationship with the U.S. While some predict a renewal of the United States-Mexico-Canada Agreement (USMCA), which would involve concessions from Canada, others warn of significant downside risks. If U.S. policies shift under the Trump administration, there could be increased uncertainty affecting Canadian exports, particularly if exemptions for tariff-free imports are scaled back. Conversely, Canada is also working to diversify its trade portfolio, aiming to reduce dependence on U.S. markets from about 75% to less than 70%, with a renewed focus on Europe, the Pacific Rim, and emerging markets in South America and Southeast Asia.
Infrastructure initiatives are also expected to play a crucial role, particularly with the launch of the new Major Projects Office designed to accelerate the approval process for significant projects. This initiative could stimulate long-term economic growth if it garners genuine support from involved stakeholders, including Indigenous communities. However, skeptics worry that without a substantial pipeline of projects waiting for approval, these efforts may lead to minimal real impact.
In the housing sector, a mixed outlook persists. Homeowners may see some recovery in the stressed markets of southern Ontario and British Columbia, yet overall affordability issues continue to discourage new buyers. A new federal agency, Build Canada Homes, aims to quicken the pace of affordable home construction, signaling a positive shift in addressing longstanding housing shortages.
Job markets are forecasted to rebound as companies shake off the effects of trade wars. This recovery could be particularly beneficial for younger workers facing high unemployment rates. In sharp contrast, a return of tariff pressures might prompt layoffs, worsening economic conditions and potentially leading to recession in vulnerable provinces like Ontario and Quebec.
Defence spending is anticipated to increase as Canada fulfills its NATO commitments. This push could help bolster economic growth and encourage business investment, but concerns over rising federal deficits due to this increased expenditure linger.
The stock market also presents a dual narrative. While stock prices have been on an upward trajectory, reminiscent of the dot-com boom, it raises questions about sustainability. Economic forecasts suggest that such rapid valuations could lead to corrections if market conditions falter.
The manufacturing sector has shown resilience despite concerns over closures, mainly due to the potential advantages under USMCA exemptions. However, there are fears that past reliance on electric vehicle manufacturing investments could hinder competitiveness in the coming years.
Critical to Canada’s economic future will be the role of artificial intelligence. Although initial signs of AI’s productivity benefits may surface, risks of job displacement loom large. The balance in employment impacts remains closely tied to broader economic conditions.
Political stability and fiscal health will either provide the foundation for growth or escalate risks. Canada’s government is tasked with preserving a AAA credit rating while pursuing a growth agenda amidst shifting economic landscapes. As leaders like Laurent Ferreira of National Bank of Canada emphasize, ensuring competitive regulatory frameworks and investor confidence will be essential for revitalizing the economy.
With new policies in place and a focus on indigenous participation in resource projects, there’s a sense of hope for collaborative efforts to drive meaningful growth. As Canada navigates these complexities, the commitment to fostering a “can-do” spirit and taking bold actions will be crucial for economic success in 2026 and beyond.