Deloitte Forecasts Canadian Economic Growth Amidst Challenges

📅 3 weeks ago

Deloitte Canada projects a gradual economic recovery for Canada, with growth expected at 0.7% in 2026 and 2% in 2027, as various factors impact consumer confidence and business investment.

TORONTO — According to Deloitte Canada’s recent summer outlook, Canada’s economy is anticipated to rebound by the end of this year, with a projected growth of 0.7 percent for 2026 following a period of weak economic activity in the first quarter. Dawn Desjardins, the chief economist at Deloitte, highlighted several challenges currently affecting the economy, including trade tensions, energy costs, supply chain issues, and a decline in consumer confidence. However, she expressed optimism for a recovery, forecasting a growth rate of 2 percent in 2027. Desjardins emphasized that clarity on these key issues is crucial for business investment, which is expected to accelerate and subsequently create jobs. She noted that the current climate has led to a soft consumer confidence level as Canadians worry about their financial future and job security, which feeds into a broader narrative for a stronger economic outlook in 2027.
Two main assumptions underpin Deloitte’s forecast that could enhance business confidence. The first is the maintenance of "relatively tariff-free" access to the U.S. market, although certain sectors like steel and aluminum are still subject to tariffs. The second assumption is that government policy changes will play a role in restoring business sentiment by reducing interprovincial trade barriers and increasing spending on major infrastructure projects. The report describes Canada’s economy as stagnating, but it rebuffs the idea of an impending recession, stating that the economic growth stalled in the first quarter, resulting in a technical recession as defined by two consecutive quarterly GDP declines. Despite this, many economists, including Bank of Canada governor Tiff Macklem and the C.D. Howe Institute’s business cycle council, argue against labeling the current economic state as a recession, citing a lack of pervasive economic contraction.
Deloitte’s report indicates that while some sectors, particularly steel, aluminum, and lumber, are experiencing contraction due to tariffs, the overall economy does not exhibit the characteristics of a recession, which is typically widespread, prolonged, and deeply impactful. Desjardins pointed out that the most significant risk to Canada’s economic outlook remains unresolved trade issues with the United States. The Canada-U.S.-Mexico trade agreement (CUSMA) is approaching its renewal deadline on July 1, and while it is set to expire in 2036, a renewal would extend this expiration to 2042. If a renewal does not occur, CUSMA will be subject to annual reviews for up to a decade. A failure to extend CUSMA or an escalation in U.S. tariffs could severely affect Canadian exports and business confidence. Previous modeling by Deloitte has indicated that losing tariff-free access to the U.S. market would significantly impact the Canadian economy.
Conversely, achieving clarity on trade conditions could help reduce uncertainty. The report also suggests that there is a potential for improvement in sectors currently facing high tariffs. Business investment is expected to remain subdued for the remainder of the year as companies await clearer trade conditions. However, improvements in business investment are anticipated in 2027, largely driven by government policy measures aimed at unlocking private capital and streamlining project approvals, which are expected to accelerate deferred spending.
Prime Minister Mark Carney’s economic agenda includes infrastructure investments to bolster trade and diversify away from U.S. dependence. This strategy encompasses establishing a major projects office to expedite the reviews of significant nation-building projects. Desjardins indicated that the path to growth lies in the concerted efforts of government infrastructure investments, defense spending, and investments in critical minerals and resources. The report emphasizes that various government policies, including tax incentives, elimination of internal trade barriers, workforce re-skilling, and investments in artificial intelligence, are pivotal for unlocking private investment.
Desjardins also noted that while rising energy prices due to the conflict in the Middle East have benefitted Canadian energy producers, the overall impact has been detrimental to consumers and businesses. She predicts that energy prices will ease throughout the year, as indicated by trends in futures markets. Statistics Canada reported a rise in the annual inflation rate to 3.2 percent in May, an increase from 2.8 percent in April, marking the highest headline inflation rate since December 2023. Despite this, Macklem has not observed signs of generalized inflation even with the recent price pressures. The report also mentions a decline in oil prices, with crude oil contracts falling below US$70 after peaking above US$100 per barrel in late April. Desjardins concluded that if futures trends continue, decreasing energy prices will alleviate some financial pressure on households.

Related Posts