Canada's economy forecast to grow 0.7% this year, 2% next

Canada's economy is forecast to grow 0.7 per cent in 2026 after weak activity in the first quarter, according to a summer outlook from Deloitte Canada released Thursday.

Chief economist Dawn Desjardins said several factors have weighed on the economy, including trade tensions, energy costs, supply chain pressures, and lower consumer confidence. However, she expects growth to recover to 2 per cent in 2027 as clarity emerges on key issues.

"As we get some clarity on some of these key issues impacting our economy, we do think that we will see business investment accelerate and this will create jobs," Desjardins said. "This will also help Canadian consumers feel better because right now Canadian consumer confidence is also pretty soft."

Deloitte's forecast hinges on two main assumptions: Canada maintains relatively tariff-free access to the U.S. market (though sectors like steel and aluminum may still face levies), and government policy changes help restore business sentiment through efforts to reduce interprovincial trade barriers and spending on major projects.

Desjardins pushed back on recession talk. Statistics Canada reported a technical recession in the first quarter, but Deloitte notes that only certain sectors—steel, aluminum, and lumber—are contracting due to heavy tariffs. "When we think about a recession, it's usually pervasive across the economy, it's prolonged and deep, and all these metrics, we just don't feel we're there," she said.

The unresolved trade situation with the U.S. remains the biggest risk. CUSMA is approaching a July 1 renewal deadline; failing to extend it or further U.S. tariff escalations would hit Canadian exports and confidence hard.