Deloitte forecasts slowing Canadian economic growth amid trade tensions
Trade conflicts and energy prices to dampen Canada's GDP growth through 2027
1Revised GDP projections
Deloitte's fall economic report revised Canada's 2026 GDP forecast upward by 0.2 percentage points to 0.9%, citing resilience amid US trade tensions and high energy prices. However, the firm warns the strong 3.3% Q2 2024 growth may represent a temporary peak. New US tariffs on $20B Canadian imports prompted a 0.4 percentage point reduction in 2025's forecast. The 2027 GDP growth projection stands at 1.6%, reflecting anticipated economic slowdown as businesses adjust to new trade realities.
2Trade tensions impact
US-Canada trade conflicts remain the dominant economic risk, with new 50% tariffs significantly affecting $20B in Canadian exports. Deloitte predicts export growth will weaken sharply in late 2026 (-0.9% Q3, -5% Q4) before a modest 0.3% rebound in 2027. The slowdown reflects supply chain repositioning challenges and weakened US demand due to tariffs. Economist Dawn Desjardins notes US buyers are already showing reluctance due to high tariff costs, creating headwinds for Canadian exporters.
3Investment weakness and recovery
Business non-residential investment remains Canada's most significant economic vulnerability, though Deloitte anticipates gradual improvement. Forecasts show investment growing 1.6% in 2026 and 3.5% in 2027, driven by policy changes like reduced interprovincial trade barriers and the proposed Productivity Mega Deduction tax incentive. Government spending on infrastructure, defense, and AI could catalyze private sector investment. These measures aim to restore business confidence by improving market access and sales potential.
4Inflation and monetary policy
Persistent high energy prices create inflation risks, with potential spillover to other goods. Deloitte's baseline scenario assumes the Bank of Canada will maintain its 2.25% benchmark rate through 2024. However, the central bank may adjust based on household inflation expectations. Desjardins suggests rate hikes remain possible if surveys indicate growing consumer concern about rising prices. The bank's decisions will hinge on whether energy price pressures broaden across the economy.
5Sector-specific impacts
The report highlights uneven effects across sectors. Energy faces direct tariff impacts while infrastructure and AI stand to benefit from increased government spending. Transportation may see mixed effects from both trade barriers and public investment. Manufacturing must navigate supply chain reconfigurations while contending with potentially weaker US demand. These sectoral divergences will shape Canada's overall economic trajectory through 2027.
6Policy response analysis
Deloitte identifies accelerated zoning approvals, permitting reforms, and interprovincial trade liberalization as key policy levers to stimulate investment. The proposed Productivity Mega Deduction aims to boost competitiveness by incentivizing capital expenditures. These measures seek to counterbalance trade headwinds by improving domestic business conditions. Their effectiveness will depend on implementation speed and private sector response to the changing incentive structure.
7Consumer adjustment period
Canadian households face a transitional period as businesses pass through higher costs from tariffs and energy prices. The report suggests consumer spending patterns may shift as inflation expectations evolve. Deloitte monitors whether price pressures remain contained to energy or spread more broadly, which would influence both monetary policy and business planning. Consumer sentiment will be crucial in determining the economy's resilience through the slowdown.
8Long-term competitiveness
The outlook underscores Canada's need to enhance productivity and diversify trade relationships beyond the US market. While immediate challenges dominate, structural reforms like the productivity tax incentive aim to strengthen long-term competitiveness. Success depends on businesses' ability to adapt supply chains and develop new export markets during this transitional period. Deloitte's projections assume gradual improvement but highlight significant execution risks to the policy agenda.