EN 
It was a tumultuous year for the Canadian economy—marked by trade volatility, policy pivots, and a fundamental shift in the economic landscape.
Canada found itself navigating a markedly different path than anticipated at the start of 2025. Tariff uncertainties escalated globally with geopolitical tensions testing longstanding trade relationships, and immigration policy undergoing significant reform.
Yet amid these headwinds, the Canadian economy demonstrated surprising resilience. CUSMA protections shielded most Canadian exports, while the Bank of Canada’s interest rate cuts, fiscal support, and a recovery in household balance sheets helped sustain consumer spending through significant uncertainty.
We’ve seen early signs that make us cautiously optimistic for Canada’s outlook in 2026, barring any external shocks. Though, distinct regional challenges, softness in the housing market, and a demographic slowdown remain headwinds ahead.
In hindsight, we look back at some of the key charts and research that helped shape our thinking throughout 2025.
Canada fared better-than-expected largely due to CUSMA
Sector specific U.S. import tariffs have had a significant impact on some industries (motor vehicle and parts production, steel and aluminum among others), but an exemption from most tariffs for products compliant with CUSMA trade has kept most Canadian exports duty free.
The average effective tariff on U.S. imports from Canada has been the lowest of any major U.S. trade partner in 2025—a key contributor to Canada’s resilience.
Targeted tariffs creates diverging regional outcomes
Targeted sector-specific U.S. tariffs have created distinct regional challenges across Canada.
Manufacturing-focused Ontario and Quebec have, so far, borne the brunt of the impact, while resource-heavy provinces have faced less exposure. But, Chinese tariffs on agricultural exports have posed headwinds. This uneven tariff exposure has positioned provinces for significantly diverging outlooks heading into 2026.
Consumer spending remains resilient amid uncertainty
Consumer spending has been a bright spot in a year of heightened trade uncertainty, slowing population growth and rising unemployment—underpinning growth.
We think relatively lower U.S. tariff hikes on Canada versus other trade partners, earlier BoC rate cuts, limited broad-based layoffs, and robust equity valuations are driving spending. They have supported a recovery in household balance sheets from higher debt servicing costs in prior years.
Canadians changed their travel plans
The travel sector was in recovery mode through late 2023 and 2024 after the pandemic, but the pattern reversed sharply in early 2025 as trade uncertainties peaked.
There wasn’t simply a pullback in overall travel—but a meaningful change in Canadian preferences with more opting to travel to destinations outside of the U.S.
Weaker business investment risks extending underinvestment
Trade-related uncertainty weighed heavily on business investment in 2025, creating challenges for investment and hiring decisions.
Canada’s jobs market has shown signs of improvement in recent months, but the uncertainty stemming from trade policy risks extending a decade of business underinvestment—a key contributor to the country’s lagging productivity growth.
Condo developers’ drought worsened in biggest markets
Pre-construction apartment sales barely had a pulse in the Greater Toronto Area, down about 90% from the average over the nine years prior to 2024. A broadly similar story unfolded in Vancouver.
This spells trouble for housing construction in 2026, and beyond. We expect housing starts will fall more than 10% nationwide—and, even more so in 2027—despite concerted policy efforts to boost supply.
Immigration policy shift puts damper on demographic growth
Canada’s population growth moderated sharply, rising just 0.3% quarter-over-quarter annualized in Q3 2025 – the slowest pace on record outside the pandemic.
The slowdown stems from declining temporary resident arrivals and an uptick in outflows, aligning with recently announced targets set out in the federal government’s immigration plan. We expect a continued reduction in the number of non-permanent residents will cause population growth to stall in 2026.
Big year for a fiscal pivot
There was a steep ramp up in defence spending with FY 2025-26 marked as the year we are finally projected to hit the 2% of GDP NATO target, just as the alliance’s conversation shifted towards plus 3.5%.
Canada is only at the beginning of digesting its implications, including the fiscal hit. Defence was the largest single item in the recent blockbuster federal budget, and there are still questions around how to deploy the big new spending, along with its impact on growth.
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