**
Canada’s economic outlook has taken a hit, with Deloitte Canada revising its GDP growth projection for 2026 down to 1.2 per cent, a significant decrease from earlier estimates. The firm attributes this downward revision to the ongoing conflict in the Middle East, particularly the impact of rising energy prices and the uncertainties surrounding trade relations with the United States. As geopolitical tensions escalate, both consumers and businesses in Canada are bracing for tougher economic conditions.
Deteriorating Economic Forecast
In its latest spring economic outlook, Deloitte has slashed its growth forecast for Canada by 20 per cent, reflecting a more pessimistic view of the country’s immediate economic future. Dawn Desjardins, Deloitte’s chief economist, remarked that this adjustment is largely influenced by “another layer of uncertainty” stemming from the U.S.-Israeli conflict and its repercussions on global oil markets. Previously estimated at 1.5 per cent in January and 1.7 per cent last year, the new forecast underscores the challenges ahead.
Desjardins highlighted the compounded uncertainty affecting Canada’s trade relationship with its southern neighbour, which is further complicated by surging energy prices resulting from the conflict. In a recent interview, she noted that both consumers and businesses are “facing a lot of headwinds,” signalling that the first half of the year may experience slower growth than initially anticipated.
Rising Energy Prices Impacting the Economy
The ongoing conflict has sent U.S. crude oil prices soaring above $110 a barrel, following remarks from U.S. President Donald Trump indicating that military actions against Iran would persist without a defined timeline for resolution. This spike in oil prices has immediate consequences for Canada, where the average gasoline price has surpassed $1.80 per litre—the highest in nearly four years, according to GasBuddy.
Desjardins warned that these elevated energy costs are likely to strain supply chains and could hinder business investments, which have not kept pace with government spending. “We think this business investment in our forecast starts to improve in the second half of this year,” she stated, although she cautioned that this optimism is contingent on the conflict not escalating further.
Trade Relations and Consumer Sentiment
Heightened trade tensions, especially concerning the Canada-U.S.-Mexico Agreement, remain a significant concern. Desjardins pointed out that any “significant changes” to the agreement, particularly regarding tariffs, could adversely impact Canada’s economy. The report suggests that consumers are likely to exercise caution, anticipating prolonged high energy prices and a sluggish labour market, leading to modest spending growth in 2026.
On the employment front, the unemployment rate is expected to stabilise, gradually decreasing to 6.3 per cent by the end of 2026, though recent statistics revealed a slight uptick to 6.7 per cent in February. The labour market is currently experiencing variations across sectors; while manufacturing is struggling due to tariffs on steel, aluminium, and automotive products, the healthcare sector is witnessing robust job growth.
The Housing Market and Future Prospects
As Deloitte’s report outlines, Canada’s housing market recovery is predicted to be slower than previously anticipated, with construction starts projected to decrease to approximately 243,000 units in 2026 from 259,000 in 2025. Factors such as elevated construction costs and rising inventories of unsold units are adversely affecting builder confidence, particularly in major markets like Toronto and Vancouver.
Desjardins expressed concern regarding consumer sentiment in the housing sector, suggesting that many potential buyers are hesitant, opting to wait and see if prices further decline. “You’re not seeing consumers really confident enough necessarily to take that plunge,” she noted, emphasising the cautious approach many are taking amidst uncertainty.
Why it Matters
The revised economic outlook from Deloitte highlights the intricate interplay between global events and domestic economic conditions. As Canada navigates these turbulent waters, the potential for slower growth, compounded by rising energy costs and trade uncertainties, underscores the need for strategic planning and diversification in trade relations. The coming years will be crucial for Canadian businesses—whether they can adapt and invest in a more stable economic future will significantly determine the nation’s resilience in the face of international challenges.
