Canada’s economy is expected to avoid a recession this year, despite stalling in the first half of 2025. Economists anticipate modest growth as uncertainty surrounding Canada-U.S. trade lingers.
In Deloitte Canada’s fall economic outlook, chief economist Dawn Desjardins projects real GDP growth of 1.3% in 2025 and 1.7% in 2026 — slightly higher than her June forecast. She highlights several positive forces supporting the economy: continued exemptions from U.S. tariffs under CUSMA (Canada-U.S.-Mexico Agreement), expected Bank of Canada rate cuts, interprovincial trade initiatives, and major infrastructure investments.
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“After a steep decline, we’re coming back a little bit,” Desjardins told Yahoo Finance Canada. “We’re in this period of slow growth, just treading water.”
Statistics Canada data showed GDP rebounded in July after three consecutive months of contraction, while a preliminary estimate suggests August growth was essentially flat. Deloitte expects the Bank of Canada to cut rates twice this fall, bringing the policy rate down to 2.25%.
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The outlook assumes Canada will retain its current CUSMA tariff exemptions. According to RBC, 88% of Canadian exports entered the U.S. duty-free in July. However, the trade deal is scheduled for renegotiation next year, adding uncertainty.
“There is still extraordinarily high uncertainty,” Desjardins 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, expects real GDP growth of around 1% by the end of 2025 — in line with the Bank of Canada’s baseline forecast. “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. “The Canadian economy isn’t out of the woods yet.”
The federal government is set to release its fall budget on November 4. Prime Minister Mark Carney has called it “the biggest investment in this country’s future in a generation.” A senior government leak suggests the deficit could hit $100 billion this fiscal year.
Desjardins expects another rate cut in October and sees the Bank of Canada eventually lowering its policy rate to 2% to support growth. “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 explained.
She also flagged Canada’s persistent weakness in business investment — a problem compounded by U.S. President Donald Trump’s trade policies, which have made capital spending decisions more difficult for Canadian firms. “This has been a laggard for a long period of time,” she said. “Honestly, I’m not sure what the end game is for the U.S. administration.”
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