Canadian Economy Still Expected to Grow Despite Trade Tensions

The Bank of Canada's Market Participants Survey for the second quarter revealed that financial market participants still expect some growth in the Canadian economy by the end of the year, despite listing trade tensions as a top downside risk.

When asked to identify up to three downside risks to Canada's economic growth, 96% of respondents put an increase in trade tensions on their list. Sixty-five percent listed tightening of global financial conditions while 42% named increasing geopolitical risks.

The median real gross domestic product growth forecast in the survey was 1.3% growth year-over-year in 2026 and rising to 1.9% by the end of 2027. Market participants also put median expectations for inflation at 2.6% by the end of 2026 before dropping to 2.1% by the end of 2027.

The survey was conducted several weeks before the United States announced that it would not be renewing the Canada-U.S.-Mexico Agreement for another 16 years, triggering rolling annual reviews for up to a decade and adding significant uncertainty to the Canadian economy.