Canada’s 2026 Economy Looks Tepid, TD Says

TD sees 1.4% GDP growth driven by government spending and household incomes, but trade uncertainty and a shrinking workforce could keep jobs, housing, and consumer demand subdued.

What’s going on here?

TD Economics says Canada’s 2026 may feel like a slow warm-up, with growth improving but still capped by trade questions and a shrinking pool of workers.

What does this mean?

TD expects a “lukewarm” 2026, with more momentum later in the year. It forecasts GDP growth of 1.4% in 2026 versus 0.8% in 2025, helped by government spending and rising household incomes. But businesses may stay cautious: companies still lack clarity on trade rules as the Canada–US–Mexico Agreement (CUSMA) review ramps up, keeping investment restrained. TD also thinks exporters will keep diversifying away from the US, a slow shift that can drag on near-term growth even if the worst of the earlier shock has passed.

Why should I care?

For markets: Weak growth doesn’t always mean a loose jobs market.

If the workforce keeps shrinking, Canada could log softer growth without a big jump in unemployment. TD expects little job creation early in 2026, yet still sees the unemployment rate drifting lower as labor supply tightens. That dynamic can make “soft” employment prints less bearish for rate expectations than they’d look in a faster-growing country.

The bigger picture: Trade clarity may matter more than stimulus.

TD’s baseline assumes the US trade hit fades, but the CUSMA review is a major unknown that could keep firms on the sidelines. That matters because business investment is what usually lifts productivity and wages over time. Pair that with a gradual rotation of exports to new markets, and the next phase could look more like a long adjustment than a classic rebound.

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Originally Posted February 12, 2025 – Canada’s 2026 Economy Looks Tepid, TD Says