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RBC Thought Leadership Eurasia Group

Top Risks 2026: Canada

Author: Eurasia Group

The world is undergoing a series of once-in-a-generation shocks and adjustments. Canada needs to adjust, too. Rapidly. 

Some of the economic structures and patterns that brought Canada into this century may not live out this decade. Political and security alliances, so necessary to peace and order, are in the midst of a realignment. And advanced technologies are disrupting the very nature of work, commerce and human interaction — so much so, and so quickly, that even last year’s assessments seem distant. 

The compression of time and risks means no company or government, public enterprise or community organization, can afford to wait and watch.

Eurasia Group and RBC Thought Leadership created this report, the first of its kind, to help Canadians navigate those profound risks and sea changes in 2026. The following is a combination of five assessments from Eurasia Group’s Top Risks 2026 outlook — the global ones most likely to impact Canada — and five assessments from RBC Thought Leadership, exploring the most significant domestic forces that may shape the year ahead. These are not predictions or forecasts: rather, they are carefully considered and researched analyses of the trends, forces and interests shaping our economy and policy environment, informed by economic data, market insights and interactions with leading businesses, investors and policymakers. They’re designed as lighthouses, rather than navigation systems. 

This report is also a foundation for a new global relationship between Eurasia Group and RBC, to help firms and governments assess and manage their own risks in these unprecedented and volatile times. In the year ahead, we will publish more on these issues and convene leading thinkers in the economy and government to advance our collective understanding of the risks around us. In June, we will host the annual Canada-U.S. Eurasia Group summit in Toronto, to help shed more light on the risks, and opportunities, as these two countries and neighbours — both extraordinary in their own right — advance, and as needed redirect, their economic relationship in this rapidly changing world. 

The challenges ahead can seem daunting, even overwhelming. But as we’ve seen through history, including recent history, moments of uncertainty — that amorphous cousin of risk — are when those with clear heads and confident minds excel. 

RBC Thought Leadership

Remilitarizing the Maple

Canada is looking to build its military, develop an industrial base and forge new commercial partnerships at a wartime pace. A failure to execute could lead to others, notably the U.S., stepping in.

Canada’s enthusiasm for rapid militarization began the moment Donald Trump demanded more from America’s NATO allies and deepened as he mused about taking over parts of the Western Hemisphere, from Panama to Greenland, even putting the idea of Canada as the 51st state on the table. For Canadians, the exercise was initially a budgetary one, finding ways to allocate tens of billions to its small and often overlooked military. But when Trump sent the U.S. military into Venezuela, the warning for Canada and its armed forces took on a sharper focus. Borders are no longer gates. They’re hard lines that need to be defended.

For Canada, the task of building a big military—the biggest since the Second World War—is daunting. In war, extraordinary measures like state-run supply chains can be implemented quickly. In peacetime, each step needs more negotiation—that’s made even harder with a public that barely remembers the losses of the Afghan mission and a military bureaucracy that has struggled with much smaller magnitudes of procurement and deployment. The industrial base is a further challenge. Mention the words “military-industrial complex” and most Canadians will say “no, thanks.” Before Trump returned to power, Canada ranked 27th out of 31 NATO nations when it came to military spending as a share of GDP. In fact, defence spending had languished for the past 25 years at levels well below the late 20th century averages. Military enrolment has also been in terminal decline, with less than two service members for every 1,000 people. Even peacekeeping has declined to a few dozen blue helmets.

Read the full risk here.

Eurasia Group

U.S. Political Revolution

The United States is experiencing a political revolution: President Donald Trump’s attempt to systematically dismantle the checks on his power, capture the machinery of government, and weaponize it against his enemies. Last year, we warned about the “Rule of Don”; what began as tactical norm-breaking has become a system-level transformation beyond partisan hardball or executive overreach—qualitatively different from what even the most ambitious American presidents have attempted (please see Box 1: Trump vs. FDR). With many of the guardrails that held in Trump’s first term now buckling, we can no longer say with confidence what kind of political system the United States will be when this revolution is over.

In Trump’s view, he overcame a rigged election, two partisan impeachments, dozens of unjust felony convictions, and two assassination attempts—one a whisker’s breadth from killing him—to stage the greatest political comeback in American history. President Trump sees the principal threat to him and his allies as domestic, not external, and he believes he has a mandate for retribution. The administration views this project not as an assault on democracy but as its restoration, a necessary purge of a political system captured by a deeply corrupt establishment that had already weaponized government against them. Over 77 million Americans voted for Trump in 2024, and many of them sympathize with that diagnosis: Among 2024 voters who said democracy mattered to their decision, a majority chose Trump—not because they saw him as a champion of democratic values, but because they believed the system was already broken and wanted someone who would disrupt it. “Trumpism” is structural, and at this most fundamental level, Trump’s supporters are getting what they asked for.

To read the full risk, download the report.

RBC Thought Leadership

A Dependency Trap

Canada is aiming to double non-U.S. exports through two of its biggest trade antagonists, China and India, even as Canadian investment continues to pour into the United States.

Since Mark Carney launched his “elbows up” campaign to get the country to trade more with the rest of the world, and with each other, Canadians have spent and invested more in the United States, even as Americans are doing less in Canada. The strong U.S. economy, and tax breaks under the Big Beautiful Bill, have reinforced the attractiveness of the world’s largest market for Canadian investors. From pension funds to mutual funds, more Canadian dollars than ever have headed south. Business investment has done the same. Carney may need to do even more on taxes and regulations to keep Canadian investments at home.

For all the bark, and bite, of tariffs, Canadian consumers have been slow to change habits, too. Highly visible brands like Tennessee whiskey were perhaps an easy early target. Florida and Arizona vacations have taken a hit, too. But in large measure, Canadians are still watching Netflix, buying Fords and drinking Coke at the same rate as before the trade war.

Read the full risk here.

Eurasia Group

Europe Under Siege

The hollowing out of Europe’s political center has been a decade in the making. France, Germany, and the United Kingdom each enter the year with weak, unpopular governments under siege from the populist right, the populist left, and an American administration and state-aligned social media openly rooting for their collapse. None face scheduled general elections. Yet all three risk paralysis at best and destabilization at worst—and at least one leader could fall. The consequences won’t stay contained: Europe’s ability to address its economic malaise, fill the security vacuum left by America’s retreat, and keep Ukraine in the fight will suffer.

To read the full risk, download the report.

RBC Thought Leadership

A Cruder World

A shift in global oil and gas prospects, from Venezuela to Qatar, changes the investment outlook for Albertan exports—and the big infrastructure projects designed to get them to overseas markets.

Canada’s ambitions to be an energy superpower—including oil and gas—is being tested after the U.S. intervention in Venezuela. But the challenges lie well beyond Canada’s immediate neighbourhood. Long-term demand for oil and gas remains an open question, especially as Asia continues to turn to electrons to power growth. A global surplus of supply, including American LNG, clouds the picture further. And then there’s the question of global growth. No growth, no need for more energy, from Canada or anywhere else.

In one strategic swoop in Caracas, U.S. President Donald Trump has attempted to ringfence the Americas with Washington as its most consequential capital. In that respect, Trump may have weakened Canada’s most valuable negotiating card—energy exports. A resurgent Venezuela crude production could displace Canadian oil in the U.S. and leave it scrambling for market share with Saudis and others elsewhere. It’s a potential competitive shock. Over the past 25 years, Canada had solidified its position as the foremost supplier of oil and gas to the world’s biggest oil market, accounting for nearly three out of every five imported barrels entering the U.S. An industry built to serve America now pumps out a record five million barrels per day, compared to just over two million bpd in 2000, with more than 90% of its exports ending up in refineries in the U.S. Midwest, West Coast and the Gulf Coast.

Read the full risk here.

Eurasia Group

China’s Deflation Trap

China’s deflationary spiral will deepen in 2026, and Beijing won’t do anything to stop it. With the 21st Party Congress looming in 2027, Xi Jinping will prioritize political control and technological supremacy over the consumption stimulus and structural reforms that could break the cycle. Beijing has the means to prevent a crisis, but living standards will deteriorate, the fallout will spread abroad, and the world’s second-largest economy will remain stuck in a trap of its own making.

Home prices in China have been falling for four and a half years—a household wealth destruction on par with America’s 2008 crash, except it’s still accelerating. Consumer confidence, investment, and domestic demand have cratered with it. Beijing bet big that high-tech manufacturing would fill the gap left by property. Instead, state-driven investment has created overcapacity, and weak domestic demand means there aren’t enough buyers to absorb it.

The result is “involution”: too many Chinese firms chasing too little demand, slashing prices to survive. Margins collapse, forcing even well-run firms to cut wages and jobs to stay afloat. Workers spend less. Demand weakens further, so firms cut prices again. Meanwhile, debts grow harder to service with each turn of the cycle. Banks and local governments keep zombie firms alive—rolling over loans, protecting local champions—which keeps overcapacity entrenched. The debt-deflation spiral feeds on itself. Donald Trump’s tariffs last year made the situation worse, closing off a critical export market and confronting Chinese firms with a grim choice: slash prices to find buyers outside the United States, or transship goods through third countries to reach America anyway. Either path squeezes margins further. Over a quarter of listed Chinese companies are now unprofitable, the highest share in 25 years. 

To read the full risk, download the report.

RBC Thought Leadership

A failure of immigration

An over-correction to the recent surge in irregular immigration is squeezing employers, hammering colleges and universities, and threatening to delay a new wave of resource projects and infrastructure builds—at the same time as Canada is nearing a demographic cliff.

Canadian public and political sentiment toward immigration is increasingly negative. But the sentiment is running contrary to the country’s needs: Canada’s aging population is facing declining fertility rates, leaving immigration central to the expansion of the skilled workforce. Cutting back on immigration drastically could lead to a rapid dip in population, hurting efforts to maintain living standards, drive economic and business activity and meet near-term economic ambitions.

The Mark Carney government’s plan to clamp down on immigration comes after years of expansionary policy. Temporary residents increased beyond capacity during Justin Trudeau’s decade-long tenure that began in 2015. Housing infrastructure and community services were overloaded, and productivity declined as temporary low-wage workers removed the incentive from some businesses to invest in technology, training or equipment. Targets for new temporary residents, including students, are down by over 550,000 in 2026 compared to 2024. And permanent resident targets are down by over 100,000 from 2024 admissions. Even with these reductions, Canadians feel immigration levels are too high.   

Read the full risk here.

Eurasia Group

AI Eats Its Users

Under pressure to generate revenue and unconstrained by guardrails, a number of leading AI companies will adopt business models in 2026 that threaten social and political stability—following social media’s destructive playbook, only faster and at greater scale.

We remain bullish on AI’s revolutionary potential. Today’s frontier models reason through complex problems, show their work, and are embedded in coding, research, and knowledge workflows. The hyperscalers are offloading large chunks of software development to AI, accelerating their own R&D cycles. In biotech and materials science, AI is opening new research pathways—though commercial breakthroughs remain mostly ahead of us. Hundreds of millions of people now use chatbots daily for everything from drafting emails to debugging code and learning new skills. This is real, and it’s just the beginning.

But AI can’t live up to investors’ expectations in the short term. Even after hundreds of billions of dollars of investment, the most advanced models still hallucinate. Their capabilities are jagged: dazzling at some tasks, unreliable at others (and often unpredictably so). That inconsistency makes them hard to deploy in high-stakes applications where errors are costly. Business adoption has been uneven, with only about 10% of U.S. firms using AI to produce goods and services, according to the Census Bureau. Many companies report significant productivity gains, but surveys suggest most have yet to see meaningful bottom-line impact. Real productivity increases will arrive through wide diffusion of the technology across the economy, but that takes time. Yet markets have priced in revolution, not evolution.

To read the full risk, download the report.

RBC Thought Leadership

The Charter Strikes Back

Canada’s economic prospects are threatened not just by external shocks and demanding neighbours; they’re up against a deepening asymmetry of federalism that makes a unified economic strategy harder to design, sell, and implement.

Different views among Ottawa, the provinces, and Indigenous governments over how to use natural resources, fund and deliver education, and stabilize a strained health-care system are pulling Canada further toward a patchwork of policy regimes just as it confronts tough trade talks with a more transactional United States and intensifying global competition. Constitutional tools that were once seen as last resorts—the notwithstanding clause, aggressive jurisdictional challenges, demands for exemptions from national regulations and standards, even provincial votes on autonomy—are becoming more commonplace, raising the odds that provinces and Indigenous groups will weaponize hard and soft vetoes on national priorities. One Canada, maybe, but many nations within.

The consequences for national unity are more serious than at any point since the 1990s because fragmentation now comes with cheerleaders and sponsors abroad. A divided global order gives foreign governments, activist networks, and corporate actors more opportunities to exploit jurisdictional tensions, whether by privileging particular provinces in supply-chain decisions, funding litigation and media campaigns around resource projects, or amplifying separatist narratives. For geopolitical rivals, anything that weakens Canada’s coherence as a U.S. ally and G7 partner could even become a feature, not a bug, as sub-national players and Indigenous rights-holders seek to express their voices more assertively over energy, climate, industrial policy, internal trade and, most critically, bilateral trade with the U.S.

Read the full risk here.

Eurasia Group

Zombie USMCA

North American trade will be stuck in limbo in 2026. The United States-Mexico-Canada Agreement (USMCA) won’t be extended, updated, or killed. It will stagger on as a zombie, keeping businesses and governments guessing while President Donald Trump continues negotiations with America’s two largest trading partners.

The agreement is up for its mandated review this year, when the parties can extend it for an additional 16 years. But Trump wants to avoid the constraints of a new trilateral deal so he can keep using bilateral leverage to squeeze economic and political concessions from both countries. Canada already scrapped its digital services tax. Mexico is imposing tariffs on China. Both are cracking down on fentanyl flows. Washington gave up nothing in return. Why lock into an agreement when the current approach keeps delivering for the U.S. president? Neither Canada nor Mexico can afford to walk away. The United States is the destination for roughly 75% of Canadian exports and 80% of Mexican exports. Trump holds most of the cards and he knows it.  

The result will be a “zombie USMCA” that is neither fully dead nor alive—and a North American trade zone buffeted by chronic uncertainty. 

To read the full risk, download the report.

Download the Report

Authors of the Eurasia Group’s Top Risks 2026:

Ian Bremmer: President and Founder of Eurasia Group and GZERO Media

Cliff Kupchan:  Chairman, Eurasia Group

Contributors to the RBC Thought Leadership and Eurasia Group’s joint report:  

Gerald M. Butts: Vice Chairman and Senior Advisor, Eurasia Group

Graeme Thompson: Senior Analyst/Global Macro, Eurasia Group

John Stackhouse: Senior Vice President, RBC Thought Leadership, Office of the CEO

John Intini: Senior Director, Editorial, RBC Thought Leadership

Yadullah Hussain: Managing Editor, RBC Thought Leadership

Jackie Pichette: Policy Lead, Skills and Higher Education, RBC Thought Leadership

Shaz Merwat: Policy Lead, Energy, RBC Thought Leadership