Report highlights drag of tariffs and weak labour markets, but policies may unlock business investment
Canada has narrowly avoided a technical recession, but sluggish growth is set to persist until momentum improves in 2026.
Deloitte’s Fall 2025 Economic Outlook highlights how, despite aggressive tariffs and cooling labour market, government stimulus and easing interest rates are laying the foundation for a rebound.
“Canada’s economy ground to halt in the first half of 2025 as the barrage of unsettling announcements weighed on business and consumer confidence and crippled trade flows,” says chief economist Dawn Desjardins. “We expect the economy to limp along in the third quarter but now think that a technical recession can be avoided with growth rates running below-potential but still on the positive side of the ledger.”
That optimism leans heavily on CUSMA , which spares most Canadian exports from steep US tariffs, while critical sectors including autos, aluminum, and steel continue to face steep trade barriers. Deloitte estimates that 95% of Canadian shipments to the US will encounter low or zero tariffs, leaving the country better off than most peers.
Labour market softness remains a key risk with job losses of 38,500 since January, pushing unemployment to 7.1% in August. Wage growth has slipped to 3.5% this year, down from 4.9% in 2024, while slower immigration is dampening labour force expansion.
Ontario, hardest hit by US tariffs, has shed nearly 50,000 jobs, while resource-driven regions like Newfoundland and Labrador and Saskatchewan are showing more resilience.
Policy measures are expected to help though with the Bank of Canada forecast to cut its policy rate to 2.25% by year-end, improving financing conditions. At the same time, Ottawa is fast-tracking infrastructure approvals and dialing back regulatory hurdles to encourage private-sector capital spending.
“The easing of regulations, a commitment to home building, funds flowing into large capital projects and fewer interprovincial trade barriers are the steppingstones to Canada’s economic renaissance. How quickly businesses respond will be the key,” adds Desjardins.
National GDP is projected to rise just 1.3% in 2025 before accelerating to 1.7% in 2026 as trade flows stabilize and pent-up housing demand is unleashed.
