Canada’s economy is headed towards a rebound in 2026, a report by Deloitte said on Monday, but there’s one catch — the country must maintain a key exemption from U.S. President Donald Trump’s tariffs.
Canada is projected to record a GDP growth rate of 1.3 per cent in 2025 and tick higher, to 1.7 per cent, in 2026, Deloitte’s fall 2025 economic outlook said.
“The big highlight really is that we no longer expect to see the economy slip into recession. That’s not to say we’re not going through a period of very slow growth. We still think the economy will struggle in the latter part of 2025,” said Dawn Desjardins, chief economist at Deloitte Canada.
However, Desjardins said there’s one key caveat.
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Currently, the vast majority of Canada’s exports to the United States are exempt from Trump’s tariffs as long as they comply with the Canada-U.S.-Mexico trade agreement (CUSMA).
Economists believe those exemptions have buffered Canada against the worst impacts of the trade war.
“A lot of things have to come together, of course. And one of those is that we maintain the carve-outs we have for our exports to go south of the border tariff-free as long as they comply with the CUSMA agreement. So that’s a pretty broad and big assumption,” she said.
The report said the CUSMA exemptions have meant 95 per cent of Canada’s exports to the U.S. face either zero or very low tariffs.
“Because our average tariff will be lower than many of the other trading partners (of the U.S.), that should sow the seeds for Canada’s export markets to do a bit better (next year),” Desjardins said.
Economists define a recession as two consecutive quarters of a country’s GDP contracting. Canada’s economy hit a “low point” in the second quarter of 2026 — April, May and June — but will avoid a technical recession, the Deloitte report said.
“Growth will remain weak this year as the groundwork is laid for better prospects in 2026,” the report said.
However, it added that sector-specific tariffs on Canadian steel, aluminum and automobiles will “continue to impact manufacturing industries.”
The report also said that Canada’s unemployment rate, which reached a high of 7.1 per cent in August, “is unlikely to move much higher.”
Deloitte’s forecast also calls for “a very gradual recovery in the housing market.” After a slow year, with buyers sitting out, there is likely to be a lot of pent-up demand for housing heading into 2026.
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