Economists lower Canadian economic growth forecast to 0.7% in 2026

Ottawa —
Economists have lowered their growth forecasts for the Canadian economy in 2026 to 0.7%, following the weak performance recorded by the economy in the first quarter of the year, in one of the largest downward revisions of forecasts in recent months.

This adjustment reflects a significant decline compared to previous estimates that predicted growth of 1.2%, placing the Canadian economy on a slower path than expected, making its growth rate among the weakest since 2015, except for the Covid-19 pandemic period.

The revision came after the economy recorded a contraction of 0.1% year-on-year in the first quarter of the year, contrary to market expectations that anticipated significant growth, and this marked the second consecutive quarterly contraction, meeting one of the technical criteria associated with economic recessions.

Despite this, most economists and the Bank of Canada still refuse to describe the current situation as a recession, considering that the slowdown is linked to temporary factors, most notably the decline in federal defense spending, the continued pressures resulting from U.S. trade policies, in addition to the sharp decrease in the number of temporary residents arriving in the country.

On the other hand, economists raised their expectations for the economy's performance in the second quarter, with an anticipated annual growth of 1.9%, driven by improved economic activity compared to the beginning of the year.

Investment forecasts for businesses were also lowered, amid ongoing uncertainty about the future of trade relations between Canada, the United States, and Mexico, which is reflected in investment and expansion decisions in the private sector.

As for inflation, estimates indicate it will remain at an average of 2.6% during 2026, before declining to the targeted level of 2% in the following year, while the unemployment rate is expected to peak at 6.7% mid-year, before gradually starting to decline.

Regarding monetary policy, economists expect the Bank of Canada to keep the key interest rate at 2.25% throughout 2026, with the possibility of starting to raise it again during the second quarter of 2027 if economic activity improves and inflation rates stabilize.