Canadian economic outlook for 2026

Key Concepts

• USMCA Renegotiation: The potential renegotiation of the United States-Mexico-Canada Agreement (USMCA) in August 2026 and its potential impact on the Canadian economy.
• Fiscal Policy (Carney Government): The Canadian government’s focus on infrastructure spending and trade partnerships to stimulate economic growth.
• AI Adoption & Productivity: The increasing integration of Artificial Intelligence (AI) into businesses and its potential to improve efficiency and profitability.
• Mortgage Renewals (Canada): The large number of Canadian mortgages coming up for renewal in 2026, particularly those originated during the COVID-19 pandemic, and the risk of loan defaults due to higher interest rates.
• US Economic Resilience: The unexpected strength of the US economy in 2025 and the expectation of continued, albeit slower, growth in 2026.
• PCLs (Provision for Credit Losses): Funds set aside by banks to cover potential loan defaults.

Canadian Economic Outlook for 2026

Michael Hall, Senior Portfolio Manager at De Hall Investment Partners, anticipates positive developments for the Canadian economy in 2026, largely driven by the policies of the Carney government. He believes the government’s focus on fiscal policy – specifically increased spending on infrastructure and construction – will provide tailwinds, complementing the work already done by the Bank of Canada regarding interest rates. No changes to interest rates are expected in 2026.

Hall emphasizes the importance of diversifying Canada’s trade partnerships beyond the United States, noting Carney’s efforts to strengthen relationships with countries in the Middle East, Europe, and Asia. He advocates for continued efforts to forge these partnerships and boost Canadian exports. Specifically, he highlights Industrials and Financials as sectors within the Canadian economy poised to benefit.

However, Hall identifies key headwinds. The most significant is the upcoming renegotiation of the USMCA agreement in August 2026, which could introduce volatility. He notes that even the possibility of renegotiation could create uncertainty. A potential breakdown of USMCA, particularly if Trump’s hinted-at withdrawal occurs, would have a substantial negative impact.

Another concern is the Canadian job market, which Hall describes as “fragile.” While the unemployment rate has recently shown slight improvement, this is largely attributed to an increase in part-time jobs. He also points to the government’s reduction in immigration targets as a potential drag on economic growth.

Regarding the Canadian housing market, Hall flags mortgage renewals in 2026 as a potential risk. Many mortgages originated during the COVID-19 pandemic at lower rates are due for renewal, and rising interest rates could lead to difficulties for homeowners and potential loan defaults. He notes that Canadian banks are already increasing their Provision for Credit Losses (PCLs) in anticipation of this risk.

US Economic Outlook for 2026

Hall describes the US economy as surprisingly resilient in 2025, defying expectations of a downturn following “Liberation Day” in April. He predicts continued US economic resilience in 2026, though at a slower pace than the previous two years.

A key driver of this continued growth is the adoption of Artificial Intelligence (AI) by US companies. Hall notes that Chief Financial Officers (CFOs) and Chief Executive Officers (CEOs) are increasingly discussing AI’s potential to improve productivity, efficiency, and gross margins during earnings calls. While still in the early stages of adoption, he anticipates that AI will contribute to bottom-line improvements and, consequently, stock price appreciation.

Hall also points to the potential benefits of tax cuts implemented by the Trump administration and continued easing of monetary policy by the Federal Reserve as factors supporting the US stock market in 2026. He anticipates increased market volatility compared to 2025.

He confirms that companies are beginning to quantify the savings and potential savings from AI implementation, with improvements in gross margins being a key indicator.

Logical Connections & Synthesis

The discussion highlights a contrast between the Canadian and US economic outlooks. While both economies are expected to remain resilient, Canada faces greater external risks (USMCA renegotiation) and internal vulnerabilities (housing market, job market). The US, on the other hand, benefits from strong consumer spending and the accelerating adoption of AI.

The conversation emphasizes the interconnectedness of the two economies, with the USMCA agreement being a critical factor for Canada’s economic stability. The success of the Carney government’s policies – particularly infrastructure spending and trade diversification – will be crucial in mitigating these risks and fostering sustainable growth. The increasing adoption of AI in the US is presented as a significant driver of future economic performance.

Ultimately, Hall’s perspective suggests a cautiously optimistic outlook for both countries, with a recognition of potential challenges and the need for proactive policy responses.