End of Year Review. Part 2 (Canadian Economy, 2026).
Author: Dr. Laurence Hewick, PhD.
Date: 12/25
The new year is shaping up to be another turbulent one, as the renegotiation of the United States–Mexico–Canada Agreement (USMCA) will once again create a climate of uncertainty that will hamper the country’s economic activity. Canada’s GDP is expected to grow by a modest 1% to 1.3% in 2026, down slightly from 2025, which is expected to close with 1.2% to 1.4% growth. Inflation should remain around 2% while we see average wages increases of about 3% to 3.5% and unemployment between 6.5 to 6.8%. Unemployment will depend on our ability to attract, retrain and transform workers to meet new changes in technology.
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. Buy Canadian!
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. Canada will be an economy in transition as we are weaned away from relying on the USA.
There are numerous opportunities for businesses to capitalize on as 2026 marks the start of a significant shift in the Canadian economy. We are in the middle of a technological revolution. Companies that embrace this shift, particularly by adopting and integrating artificial intelligence, will be able to improve their operational efficiency – providing we are not in an AI bubble, can monetise the technology, overcome governance hurdles, implementation challenges and can overcome increasing sophistication of cyber threats that are targeted at our infrastructure and supply chains.
In addition, the Canadian government has recently announced a series of significant projects that will not only impact the country’s economy but also represent new opportunities for local businesses. The expansion of the Port of Montreal, the implementation of mini nuclear reactors, expanding roads to the ‘ring of fire’ in Ontario, and a liquefied natural gas terminal in British Columbia are all examples of projects that will benefit Canadian businesses. Further, increased demand for electricity, notably to support transportation electrification projects, power data centers, and artificial intelligence, will lead utility companies to increase their generation capacity. These increases will create opportunities for new well-positioned firms to become part of the utility companies supply chains and foster long term additional growth.
Finally, the defence sector is also expected to expand in 2026 and in the years to come, as the Canadian government has committed to significantly increasing its spending to strengthen Canada’s sovereignty. It also aims to establish a national supply chain for the defence sector, presenting an opportunity for companies to capitalize on the billions of dollars that will be invested in the sector’s development.
Canadians are fortunate to have a well-educated and respected Prime Minister with world experience to lead us these in these turbulent times.