In the aftermath of a year in which trading shock headlines captivated business and consumer sentiment, something almost unthinkable happened — “Canada’s economy did not collapse.” That blunt observation from RBC Chief Economist Frances Donald captures both the surprise and the complexity of the country’s current economic moment.
GDP did not contract for two successive quarters; jobs were added; household balance sheets improved; and inflation drifted back toward target. Yet this aggregate stability obscures another truth: Canada’s economy has become deeply fragmented — a mosaic of divergent regional trends, policy pressures, and structural crosswinds that demand a narrative deeper than any headline growth rate can convey.
Donald writes it plainly: “Since Canada cannot be summarized by a GDP number, in the coming year, RBC Economics will focus on six big themes that dive deeper than a traditional economic forecast.”
What follows here connects those six themes into a cohesive story — one that matters for advisors plotting risk and opportunity, investors sizing macroeconomic signals, and clients anchoring decisions in a world that looks “normal” only on the surface.
1. Trade: Between Uncertainty and Calibration
Trade shocks dominated the story in 2025, pushing markets and policymakers into reaction mode. And yet — central to Canada’s resilience last year was the fact that “almost 90% of exports to the United States were exempt from tariffs, because the products were compliant with USMCA.”
The pivot in 2026 will be less about whether uncertainty persists — it will — and more about how the economy recalibrates around new trade dynamics. Donald emphasizes that “Canada is still in the early phases of recalibrating its economy towards new products and customers — an awakening that will progress regardless of Washington‑Ottawa conversations.”
What she is urging us to see is that resilience is not a parade of positive surprises, but the consequence of deep adaptive adjustments: firms redirecting exports; policymakers seeking stabilizing rules; and markets anticipating gradual normalization of cross‑border commerce.
For investors: trade headlines will still roil sentiment, but the underlying shift is toward diversification and structural reorientation — not merely headline risk.
2. Demographics: Growth Slows, Structure Shifts
Perhaps no factor is more quietly transformative than demographics. Donald lays it out without sugar‑coating the situation:
“Q3 saw the largest, and second ever decline in Canada’s population, going back to 1946… we expect year‑over‑year population growth to be flat.”
Importantly — and counterintuitively — this slowdown yields a structural shift in labour market dynamics: the so‑called “breakeven rate” for job creation may fall to zero. In plain terms, growth may resume even as the workforce shrinks — because fewer jobs are required to maintain stable employment metrics.
Meanwhile, the aging of baby boomers intensifies long‑term pressures on labour supply and public finances. A peak ageing wave over the next five years signals that Canada’s workforce challenges are not cyclical but generational.
For advisors: traditional growth models that rely on robust population expansion are outdated — planning must factor in slower labour‑force growth and its implications for savings, pensions, and consumption patterns.
3. Regional Divergence: One Economy, Many Stories
The image of a single national economy dissolves under closer inspection. In 2025, headline resilience masked dramatic variances across provinces; in 2026, those local colors become even more pronounced.
Ontario and Quebec — especially manufacturing hubs tied to U.S. trade — feel the lingering effects of tariff disruptions. Alberta and Saskatchewan, by contrast, remain buoyed by energy and commodities. British Columbia grapples with population outflows that strain its rental markets, while infrastructure and defence investments sprinkle opportunity unevenly across regions.
Donald’s emphasis here is not merely descriptive — it is diagnostic: Canadian economic strategy must be calibrated to diversity, not homogenized into a single growth trajectory.
For investors: regional allocation strategies, sectoral exposures, and local labour market trends are as important as broad national indicators. There is no “one Canada” in 2026.
4. Affordability: The Structural Weight of Everyday Life
If you ask most Canadians what they feel about the economy, the answer will be less about GDP and more about pocketbook realities. Donald draws attention to this lived experience:
“Prices for essentials including food and housing have grown much faster… well outpacing wage growth.”
This tension between headline inflation and essential costs is a far deeper burden on lower‑income households. Even as overall inflation moderates toward 2%, structural affordability pressures — especially in housing — persist.
Interest rate easing has softened some debt burdens, but it doesn’t resolve underlying imbalances in housing markets and essential goods pricing. Moreover, equity markets and labour market segmentation — where high earners benefit and low earners struggle — add to polarization.
For advisors: affordability isn’t a monolith. Client planning must consider household balance sheet health, varying cost trajectories, and the distributional impacts of inflation and wage trends.
5. Policy Shifts: From Monetary to Fiscal
The central bank’s pivot is well underway. After four rate cuts in 2025 — totalling 275 basis points — monetary policy has done much of what it can. Donald summarizes a crucial insight from the Bank of Canada’s own leadership: “Monetary policy can’t do everything.”
This is not a retreat — it is a handoff: markets will increasingly look to federal and provincial fiscal measures for stabilization and growth. Infrastructure and defence spending, in particular, are slated to contribute materially to output. RBC estimates fiscal impulse adding 0.4 percentage points to GDP growth through 2026.
This rebalancing reflects a deeper recognition that structural forces — climate risk, geopolitical shifts, labour dynamics — do not bend easily to interest rate policy.
For investors: fiscal priorities will shape opportunity sets — from infrastructure contractors to long‑term productivity sectors — and distort traditional monetary‑centric cycles.
6. Growth’s Emerging Pivot
Finally, Donald turns to the underlying transition that will define Canada’s growth story — one that is slow, uneven, but transformative.
“Addressing Canada’s structural economic weaknesses will not be quick or easy, but the seeds of its transition will become more apparent in 2026.”
Business investment, historically weak, needs to rebound to close persistent gaps with U.S. productivity and capital deepening. There are signs of adaptation — export diversification outside the U.S., elevated after‑tax corporate profits that could shift from distributions to investment, and infrastructure investments that build long‑term capacity.
Yet growth will not be driven solely by headline drivers like consumption or housing price inflation. The real pivot lies in scaling productive investment — domestically and into global value chains — and reframing Canada’s economic orientation beyond a single trade partner.
For investors: watch the signals that precede investment scaling: capex plans, supply‑chain reorientation, new export channels, and fiscal incentives that unlock private sector investment.
Key Takeaways for Advisors and Investors
- Resilience is real — but not uniform. The Canadian economy’s avoidance of recession masks deep divides.
- Trade uncertainty persists — but calibration, not chaos, is the operative word.
- Demographics reshape labour, consumption, and growth models.
- Regional differentiation is investment critical.
- Affordability remains a core risk factor for households and markets.
- Policy leadership is shifting toward fiscal tools — with consequences for markets, sectors, and risk premiums.
- The future of growth lies in structural transition, not short‑term cyclical bounce.
In sum, Canada in 2026 is not a story of rebound or retreat. It is a story of reconfiguration — where resilience coexists with fragmentation; where policy pivots redefine instruments; and where structural forces outpace cyclical narratives. Advisors and investors who see past the surface will find strategic clarity in the patterns beneath.
Footnote:
Donald, Frances. ”Beyond the forecast: Six themes for Canada’s economy in 2026." RBC Economics, 6 Jan. 2026.
