Our economic outlook for Canada

The Canadian economy is putting the winter soft patch in the rearview mirror and starting to benefit from the industrial boost associated with higher global oil prices. Real GDP rose 0.6% in April and 0.3% in May, supported by resilient domestic demand, solid income growth, and improving momentum across several manufacturing and trade-sensitive industries.

Higher oil prices are beginning to provide the economic support anticipated, lifting activity across Canada’s mining, quarrying, and energy sectors. At the same time, firms outside the resource sector report that rising energy costs and uncertainty surrounding the North American trade outlook are weighing on investment plans and business sentiment. Even so, the stronger-than-expected recent data have reduced the likelihood of a more pronounced slowdown, and we continue to expect growth to gradually strengthen through the remainder of 2026.

Labor market conditions have also improved, with the unemployment rate matching its two-year low of 6.5%. Labor market weakness remains concentrated among younger workers and recent entrants to the workforce, which is a challenge shared across many developed economies. By contrast, employment conditions for prime-age and higher-income workers have remained relatively stable, with limited evidence of broader labor market deterioration.

While higher energy prices have added some near-term inflation pressure, underlying inflation trends continue to move in a more favorable direction. As a result, we expect the Bank of Canada (BoC) to largely look through the energy-driven increase in inflation. With the economy still operating with modest excess capacity and core inflation continuing to ease, we expect the BoC to remain on hold through the end of 2027.