Canada’s economy looks set to avoid a recession this year—though growth will remain far from robust. After stalling in the first half of 2025, economists now expect modest progress, tempered by ongoing uncertainty about the future of Canada-U.S. trade.
Dawn Desjardins, chief economist at Deloitte Canada, projects real GDP to grow by 1.3 per cent this year and 1.7 per cent in 2026, according to her firm’s fall economic outlook released Monday. That’s a touch more optimistic than her June forecast.
Desjardins points to several “encouraging factors pulling in the same direction.”
Chief among them Canada’s current exemption from U.S. tariffs on exports that comply with the Canada-U.S.-Mexico Agreement (CUSMA), and the likelihood of Bank of Canada rate cuts. Domestic efforts—like boosting interprovincial trade and pushing forward major infrastructure projects—are also giving the economy a lift.
Canadian and Mexican leaders have also pledged closer coordination on trade in the thick of Donald Trump’s trade war.
“The big highlight really is that we no longer expect to see the economy slip into recession. That’s not to say we’re not going through a period of very slow growth. We still think the economy will struggle in the latter part of 2025,” Desjardins said.
Some signs of resilience are already emerging. Statistics Canada reported last Friday that GDP in July rebounded after three straight months of contraction. An early estimate for August suggests growth was essentially flat—but at least not sliding backward.
Interest rates & trade loom
Deloitte expects the Bank of Canada to cut rates twice this fall, bringing the policy rate down to 2.25 per cent. Desjardins believes even deeper cuts will be needed over time, ultimately to two per cent, to help spur economic activity.
That forecast rests on the assumption Canada keeps its tariff carveouts under CUSMA—a deal set to be renegotiated in 2026.
According to RBC, 88 per cent of Canadian exports entered the U.S. duty-free in July. But Desjardins warns that’s not guaranteed going forward.
“There is still extraordinarily high uncertainty,” she said. “It is a bit of a grand assumption that we maintain these carveouts as we go forward. But that is our assumption.”
Randall Bartlett, deputy chief economist at Desjardins Group (the Quebec-based bank, not to be confused with Deloitte’s economist), has a similarly cautious outlook. He sees real GDP ending 2025 roughly in line with the Bank of Canada’s baseline forecast of one per cent growth.
“While not an economic rebound to write home about, it does suggest that a 2025 recession in Canada isn’t a foregone conclusion,” he wrote in a report earlier this month. “The Canadian economy isn’t out of the woods yet.”
Fiscal policy on deck
The federal government is also preparing to flex its fiscal muscle. Prime Minister Mark Carney has promised November’s fall budget will feature “the biggest investment in this country’s future in a generation.”
How exactly that will materialize is uncertain and under scrutiny.
Still, big spending brings its own risks. According to a leak cited by Bartlett, Ottawa’s deficit could hit $100 billion this year when the long-overdue federal budget is tabled on November 4.
Desjardins argues such heavy monetary and fiscal firepower is necessary. “The reason for this firehose of monetary and fiscal policy support is that North American economies and labour markets are weak and risk getting weaker,” she said.
What still worries her is business investment, which has been sluggish for years. She notes that U.S. President Donald Trump’s trade policies have only added to Canadian companies’ hesitation.
“This has been a laggard for a long period of time,” she acknowledged. “Honestly, I’m not sure what the end game is for the U.S. administration.”
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