Canadian Analysis

Exports have fared relatively better than in other provinces, declining just 0.9% (value basis) year-to-date, though tariff-targeted sectors like lumber and aluminum have seen steep losses. These headwinds are expected to persist next year, but the completion of Phase 1 LNG Canada will substantially ramp up liquefied natural gas export capacity, and announced federal fiscal measures supporting affected sectors should help mitigate some of the impact.

Like Ontario, B.C. is expected to be disproportionately impacted by new immigration targets. It has the highest share of non-permanent residents at 8.9% of the population. A drop in net non-permanent residents has already dragged population growth lower, and we expect this to continue and deepen next year with overall population growth expected to stall or potentially contract slightly. This will meaningfully weigh on household demand, though lower interest rates should provide some offset, given B.C.’s rate sensitivity.

Consumer spending has remained resilient with retail sales up nearly 7% year-to-date. We expect retail sales to moderate to +2.8% next year amid weaker demographic growth, but improvements in the labour market should keep spending a positive growth driver. Wages have been tracking 3.5% year-over-year, while the unemployment rate has shown early signs of moderation and is expected to average around 6% in 2026.

Sluggish housing construction is expected to continue dampening residential investment. We’ve seen a notable slowdown in residential investment in August, following a rebound earlier in the year. Housing starts are estimated at 37,000 annualized units next year, roughly 6,400 lower than in 2025. However, there’s been early evidence the mild recovery in home resales has resumed, and we believe will be sustained thanks to lower interest rates.

Elevated public infrastructure spending is projected through next year. It will go some way in offsetting softening business investment, along with preliminarily and continued work on a slate of new projects. Six of the 13 projects referred to Canada’s Major Projects Office are in B.C., including Phase 2 of LNG Canada, which offer meaningful upside potential to non-residential investment. A recent B.C. Supreme Court decision regarding an Indigenous land claim in Richmond could impact the investment outlook. We will closely monitor developments as the situation evolves.

Oil production continues to set record highs, rising 4% year-to-date, largely driven by increased capacity on the Trans Mountain Expansion Project. Oil exports to non-U.S. markets have surged 142% so far this year, meaningfully narrowing the West Texas Intermediate-Western Canadian Select price differential.

Still, global oil prices have declined amid uncertainty surrounding global growth and rising OPEC production, pressuring price expectations for 2026. Combined with our expectation of a moderately stronger Canadian dollar, these headwinds could weigh on production and business investment in the sector.

Stronger-than-expected crop yields this year prompted an upward revision to our 2025 real GDP estimate. Major crops delivered impressive gains with barley up 26%, canola up 13%, and wheat up 24% from last year—with wheat production reaching record highs. But, Chinese tariffs are expected to be a stiffer headwind, and could weigh on farmers seeding plans for the spring.

Alberta’s economy continues to be bolstered by strong consumer spending, supported by rapid population growth. Immigration cuts are slowing the pace, but demographic underpinnings still compare very favorably to all other provinces next year. The province benefits from a natural increase in population, and its affordability advantage continues to draw strong migration flows (both international and interprovincial). This should keep household spending upbeat, complemented by lower interest rates.

Softening population growth should help rebalance the labour market, though we expect absorption issues to persist amid sustained inflow into the labour force. We project Alberta’s unemployment rate to stay above the national average for an eleventh consecutive year averaging 6.8% next year.

Housing starts are on track to average a record pace this year, but momentum is expected to moderate in 2026 as easing household formation, project completions and higher inventory of homes cool demand for new projects. Residential construction investment has slowed since the start of 2025, but government infrastructure spending has provided a partial offset, and is expected to continue to support growth next year. Additional tailwinds could emerge over the medium-longer term with the federal-Alberta MOU on a new pipeline development.

Exceptional agricultural production—including record canola output—has boosted our growth expectations for 2025, but Chinese tariffs cloud the outlook for 2026. These tariffs have contributed to lower canola farm cash receipts, declining by $594 million between January and September compared to the same period last year. Diversification has provided some relief—with export value to non-U.S. and non-Chinese markets rising 23% year-to-date—but, total nominal exports have still contracted roughly 4%.

Energy and mineral production show mixed momentum heading into 2026. Oil production has softened 4% so far this year amid weaker global prices, while potash production has remained largely flat and uranium production has declined 15%. Elevated prices for both potash and uranium support healthy receipts, and uranium prices are expected to firm further next year, providing continued support. We remain vigilant of potential escalation in U.S. potash tariffs, which could create additional downside risk.

The labour market remains one of the healthiest in the country with the unemployment rate at 5.6% in November—the second lowest among all provinces. Population growth has moderated to 1.5% year-over-year in Q2, but Saskatchewan could experience among the faster growth rates in 2026. Tight labour conditions and robust population inflows should continue underpinning consumer spending and housing demand.

Construction stands out as a key driver of economic momentum with both residential and non-residential investment accelerating through the past year, particularly in government-led projects. Housing starts are tracking at 6,300 annualized units—highest level since 2014. Major projects including the McIlvenna Bay Foran Copper Mine, designated as a federal “nation-building” project is about 64% complete, and on track for commercial production in mid-2026. The Jansen potash mine is expected to begin production in mid-2027. These projects will continue providing meaningful support to employment and construction.

Manitoba’s exports face the third-highest effective tariff on shipments to the U.S. at 2.9 % as of August, just behind Ontario and Quebec. Total nominal exports have declined 11% year-to-date compared with last year, driven by a 17% drop in U.S.-bound exports, and a steeper 36% decline to China.

Exports to non-traditional markets have risen roughly 21% so far this year, but this diversification has only partially offset losses. Recent U.S. tariff expansions in October, which include 25% on the non-U.S. content of heavy trucks and 10% on buses, and potential tariffs on pharmaceutical products, which represent some of Manitoba’s largest exports to the U.S. in 2024, could put additional strain on manufacturing next year.

Despite a record wildfire season, agricultural production reached record highs in 2025 across a variety of crops, contributing to a modest boost to growth this year (now expected at 1.4% from 1.2%). However, the sharp decline in exports to China reflects mounting tariff pressure on key agricultural exports like canola and pork.

The labour market has weakened considerably with the unemployment rate climbing to 6.1% as of November. Consumer spending has remained resilient with retail sales gaining about 5% so far this year, but this masks underlying vulnerabilities. A softer labour market, slowing demographic growth, and tariff uncertainty are expected to dampen household spending in 2026.

Construction remains a critical anchor for Manitoba’s performance. Residential construction has risen over 20% year-to-date, and the continuation of large-scale government projects through the Capital Infrastructure Investment Plan will help sustain momentum.

Ontario sits in the crosshairs of U.S tariffs. Manufacturing-dependent regions in central and southwestern Ontario face the brunt of U.S. tariffs.

Layoffs and production shifts to the U.S. at steel and auto plants have weighed on manufacturing employment, and raised concerns about future industrial capacity. Meantime, trade tensions continue to dampen investment and exports, compounding pressures on a sector that never fully recovered from the pandemic.

Federal and provincial support—including tariff protections on steel, enhanced domestic demand through Buy Canadian policies, and improved financial and freight rates for key sectors—may provide struggling industries with breathing room while developments like Vianode’s $3.2 billion synthetic graphite facility and NexStar’s start of mass battery cell production in Windsor offer some promise. Still, it remains unclear whether these additions can quickly offset recent production losses.

All things considered, the outlook for trade remains challenging. Exports have weakened following a Q1 surge driven by front-loading ahead of anticipated tariffs. Absent another one-time boost, the province is unlikely to benefit from the same tailwind, keeping Ontario-U.S. trade under stress.

Despite these challenges, trade-related damage has remained relatively contained. Protection from the Canada-U.S.-Mexico Agreement (CUSMA) has limited spillover to other sectors—including most services where employment has held steady. This dynamic is fostering a two-speed recovery with the broader labour market expected to improve in 2026 as labour force growth slows, and trade policy becomes less opaque.

Lower interest rates will be a benefit too. The lagged impact of past interest rate cuts should encourage Ontario households to continue spending after holding back during the high-interest rate period. This should benefit interest-rate sensitive sectors, gradually reviving housing market activity and offsetting some weakness in autos.

The outlook for provincial exporters remains foggy as manufacturers of steel, aluminum, and lumber products continue to grapple with painfully high U.S. tariffs. However, we don’t anticipate their situation will deteriorate further. Most exporters of other products should continue shipping tariff-free, allowing exports to stabilize next year. A meaningful boost will arrive in the spring when a new electricity contract with New York begins delivery.

Domestically, lower interest rates and tax relief measures are fuelling activity in sectors less exposed to trade turbulence. Private capital investment is unlikely to rebound given the thick layer of uncertainty clouding business decisions, but increased public infrastructure spending will sustain solid non-residential investment. The housing market should continue its gradual recovery, spurring residential investment and related household spending.

Quebec’s job market turned a corner this fall, and we expect further improvement in 2026. We expect the unemployment rate to fall slightly to 5.4% in 2026 from the 5.6% projected in 2025. This should bolster consumer confidence and keep household spending on an upward trajectory.

Still, a new wildcard has emerged: Sharp immigration cuts. Quebec’s new 45,000 permanent resident target—down from more than 60,000 in 2025—will essentially halt population growth in the year ahead, materially restraining growth in consumer spending. This demographic shift will also ripple through population-driven activities like homebuilding. We project housing starts to decline from 59,500 units in 2025 to 52,800 units in 2026.

Overall, Quebec faces a year of modest expansion driven by domestic resilience, offsetting weakness in trade-exposed sectors and the drag from slower population growth.

While low exposure to U.S. tariffs has spared New Brunswick from the worst of trade tensions affecting other Canadian regions, provincial exports to the U.S. are still declining. Weakness has been concentrated in energy as U.S. demand softens. Recent tanker activity at Port of Saint John’s, however, points to a rebound in recent weeks, underpinning our forecast for natural resource growth into 2026.

Broader export weakness can also be seen in forestry and building materials, reflecting the slowdown in U.S. homebuilding—which is not being offset by domestic demand.

Indeed, housing starts are expected to drop from 7,000 in 2025 to 5,300 in 2026. This comes amid a stark slowdown in population growth, which supported above-average housing starts in 2024 and 2025.

Government spending will temper the construction slowdown—a bright spot for the economy. The province put forward a large capital plan this fall, boosting expenditures by 21% in fiscal 2026-27.

Construction is expected to moderate in 2026 after being a major growth driver in recent years. Housing starts are projected to slow alongside population growth and home price gains. Provincial capital investment is also showing signs of easing with a planned 5% increase for fiscal 2026-27, significantly down from the 18% year-over-year increase put forward this fiscal year.

The impact of tariffs on the province has been limited so far. Exports of aircraft and transportation equipment have performed well with strong gains in the U.S. market leading the way. The seafood industry has also weathered Chinese tariffs through increased exports to Europe. Still, trade remains a risk for the outlook given uncertainty surrounding U.S. and Chinese tariff policies.

Tourism, however, provides some upside for the outlook. Both domestic and international arrivals have strengthened so far this year and could continue gaining momentum in 2026. Lower interest rates and improved per capita GDP are keeping consumer spending resilient, and could bode well for tourism next year amid strained U.S. relations. 

Tariff impacts have been less severe for Nova Scotia than other provinces. Though the U.S. is the largest trading partner, exports to the U.S. represent a fairly small share of GDP.

Headwinds, however, are still showing up at the industry-level. Manufacturing has softened—likely driven by slowing tire demand as the auto industry faces broader challenges.

Chinese tariffs on seafood products have also been less disruptive than feared. Seafood exports to China have tanked 34% year-to-date following the introduction of 25% tariffs in March, but export diversification has limited the damage on aggregate.

Increased demand from Europe is helping to offset steep declines in Chinese demand. Still, deteriorating trade relations with its two largest trading partners creates persistent uncertainty for the outlook.

The lumber industry is facing challenges amid a slowdown in homebuilding at home and in the U.S. as well. Housing starts likely peaked in 2025 as slower population growth limits household formation and demand for new units. We see this weighing on the construction industry, which has been a major source of provincial growth in 2024 and 2025.

The investment outlook on the non-residential side, however, is less clear. Trade uncertainty won’t bode well for business investment, but the province’s aggressive capital spending could sustain momentum. Future investment will become more transparent when the 2026-27 Capital Plan is tabled in the new year.

Federal defense spending announcements present an additional upside through public spending. Nova Scotia is home to Canada’s highest concentration of defense personnel which could see the province benefit from increased defense spending—including on wages for defense workers. This could provide a boost to household incomes and consumer spending when deployed.

Oil production momentum has eased after a strong first half of 2025. The restart and ramp up of oil production at a number of offshore vessels boded well for the oil and gas industry at the beginning of this year, but this boost is now largely behind us. Output will likely continue rising in 2026, however, the year-over-year impact on GDP growth is expected to be smaller than 2025.

That said, the natural resources sector unlikely to be a large drag on growth either. Mineral production presents a brighter picture with first gold poured at Valentine Mine ahead of schedule this fall. The Voisey Bay mine expansion was also completed roughly a year ago with full ramp-up expected in the second half of 2026. We see this offsetting some of the stabilization in oil production next year. Construction presents the greatest challenge as major projects wind down with few new capital ventures in the pipeline. In addition to the new and expanded mines that recently reached completion, the $4 billion west arm extension of the White Rose project wrapped up construction at the end of 2025. First oil is expected in Q2 2026, supporting marginal production growth. Residential investment is also likely to soften too given moderating population growth.

Likewise, the household sector is unlikely to sustain recent strong momentum. Retail sales have outpaced the national average for two consecutive years, but slowing population growth is likely to temper this performance in 2026. Employment is on track to contract slightly this year, and remains close to zero in 2026. We see this constraining consumption as softening employment gains weigh on household income.