{"id":7868,"date":"2026-03-11T14:50:34","date_gmt":"2026-03-11T14:50:34","guid":{"rendered":"https:\/\/www.rbc.com\/en\/economics\/?p=7868"},"modified":"2026-04-03T00:13:03","modified_gmt":"2026-04-03T00:13:03","slug":"north-american-growth-outlook-stable-as-middle-east-tensions-boost-inflation","status":"publish","type":"post","link":"https:\/\/www.rbc.com\/en\/economics\/financial-markets-monthly\/north-american-growth-outlook-stable-as-middle-east-tensions-boost-inflation\/","title":{"rendered":"North American growth outlook stable as Middle East tensions boost inflation"},"content":{"rendered":"\n
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Highlights:<\/strong><\/h4>\n\n\n\n
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Geopolitical risk rises:<\/strong> We expect on balance a neutral impact from higher oil prices on the Canadian and U.S. economic growth in 2026 (both net energy exporters) as conflict in the middle east pushes oil prices higher, but with significant regional variations. <\/p>\n<\/div>\n<\/div>\n\n\n\n

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Trade backdrop stabilizing:<\/strong> Amid a Supreme Court ruling on IEEPA measures and new U.S. Section 122 tariffs, CUSMA exemptions continue to keep Canada’s average tariff rate among the lowest of major U.S. trade partners. U.S. tariffs remain elevated but are gradually declining.<\/p>\n<\/div>\n<\/div>\n\n\n\n

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The oil shock situation remains fluid:<\/strong> Headline inflation forecasts were upgraded, but the outlook remains stable. We have left our projections of other key economic indicators\u2014including GDP growth, unemployment rates, and central bank calls\u2014unchanged from February.<\/p>\n<\/div>\n<\/div>\n\n\n\n

Issue in focus:<\/strong><\/h4>\n\n\n\n
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Recent energy price spikes lack the structural permanence to spark a rebound in Canadian oil and gas investment that\u2019s been soft for a decade. Without an investment response, the net impact on the Canadian economy is likely neutral. We don\u2019t expect the Bank of Canada will rush to respond.<\/p>\n<\/div>\n<\/div>\n\n\n\n

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Forecast changes:<\/h3>\n\n\n\n

The situation in the Middle East keeps evolving, <\/strong>and its ultimate impact on economic growth, inflation and central bank decisions in Canada and the U.S. will depend on the final scope, duration and details of the development\u2014none which are clear at the time of writing.<\/p>\n\n\n\n

On balance, we expect higher oil prices to have a net-neutral effect on Canadian and U.S. GDP growth, though with significant regional variations. Oil-producing regions benefit from higher revenues that boost corporate profits and government royalties, while consumers across the board face elevated energy costs.<\/p>\n\n\n\n

In this round of forecast update, we have raised our headline Consumer Price Index projections in 2026, but left our forecast of GDP growth and unemployment rates mostly unchanged. We do not expect central banks to rush to respond to what is fundamentally a supply shock, and see both the Bank of Canada and U.S. Federal Reserve remaining on hold through 2026.<\/p>\n\n\n\n

The U.S. administration imposed new Section 122 tariffs after the Supreme Court struck down IEEPA<\/strong>, but nearly half of U.S. imports are exempt, along with CUSMA-compliant goods. This should leave the average effective U.S. tariff rate still slightly lower under the new tariffs, even if the administration were to follow through on threats to raise the Section 122 rate to 15% from the current 10%.<\/p>\n\n\n\n

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For Canada, international trade has changed little under the new tariff rules. Most Canadian exports were already exempt from prior IEEPA measures due to CUSMA exemptions that continue to hold. The Supreme Court ruling didn\u2019t affect product-specific Section 232 tariffs on steel, aluminum, and autos.<\/p>\n\n\n\n

We continue to highlight the importance of CUSMA and related exemptions for our Canadian outlook. The U.S. administration’s decision to uphold these exemptions against new Section 122 measures underscores the agreement’s mutual benefits to businesses on both sides of the border, which is why we expect them to be preserved in our base case forecasts.<\/p>\n\n\n\n

With international trade unfolding largely as expected and geopolitical risks remaining incredibly fluid, we have retained most forecasts this month. More specifically:<\/p>\n\n\n\n