Modest Growth Projected for 2026 as Uncertainty From Iran War, Trade Linger: Deloitte

Why It Matters

The modest growth outlook signals heightened risk for investors and policymakers, highlighting how geopolitical shocks and trade ties with the U.S. can constrain Canada’s economic momentum.

Key Takeaways

• Deloitte forecasts 1.2% GDP growth for Canada in 2026.
• Unemployment projected to decline to 6.3% by year‑end.
• Defence spending hits $46 billion USD, meeting NATO 2% target.
• Trade ties with U.S. remain key risk factor.
• Housing starts expected to drop to 243,000 units.

Pulse Analysis

Canada’s 2026 growth outlook reflects a cautious environment shaped by global turbulence. Deloitte trimmed its GDP projection to 1.2% after the Iran‑related conflict pushed energy prices higher and exposed the economy to supply‑chain shocks. Compared with the 1.7% gain forecast a year earlier, the downgrade underscores how external geopolitical risk can quickly translate into slower domestic expansion, a pattern echoed across other advanced economies facing similar energy‑price pressures.

The labour market offers a mixed picture. While the unemployment rate is slated to ease to 6.3% by December, the modest decline follows a recent uptick to 6.7% in February, indicating lingering softness. Manufacturing employment losses are expected to continue through early 2026, and sectors such as education and public administration face headwinds from reduced government spending and fewer international students. Consumer confidence remains fragile, limiting spending growth and reinforcing Deloitte’s view that a cautious household sector will temper overall demand.

Policy responses aim to cushion these challenges. The Bank of Canada is projected to keep its policy rate steady at 2.25%, providing monetary stability while fiscal initiatives target infrastructure, housing, and a historic defence outlay of about $46 billion USD—meeting NATO’s 2% of GDP commitment. Accelerated public‑private investment in ports, railways, and energy corridors could spark new opportunities, but the success of these projects hinges on execution. Meanwhile, a slowdown in housing starts to roughly 243,000 units highlights construction cost pressures and trade uncertainty, suggesting that investors should monitor both policy implementation and external risk factors closely.