Canada’s economy remains stagnant, but broad-based indicators suggest it has not entered a traditional recession despite meeting the technical definition earlier this year. An improving business environment and continued access to U.S. markets are expected to support stronger growth in 2027.
BNN Bloomberg spoke with Dawn Desjardins, chief economist at Deloitte, about why Canada is not in recession territory, what is holding back business investment and why she expects the Bank of Canada to keep interest rates unchanged through the rest of 2026.
Key Takeaways
- Canada’s economy is stagnant rather than in recession, with most industries continuing to expand despite tariff-related weakness in sectors such as steel, aluminum, lumber and autos.
- Business investment remains subdued as companies wait for greater trade certainty, although stronger investment in software points to ongoing efforts to improve productivity.
- Deloitte’s forecast assumes Canada maintains largely tariff-free access to the U.S. market, with a loss of that access posing the biggest downside risk to economic growth.
- Employment growth is expected to remain modest, but slower population growth from lower immigration should help reduce the unemployment rate in 2027.
- The Bank of Canada is expected to hold its policy rate through the rest of 2026 because inflation remains primarily driven by energy prices, though persistent energy inflation could eventually require higher rates.
Read the full transcript below:
LINDSAY: While Canada met the technical definition of a recession at the beginning of the year, our next guest says Canada isn’t in recession territory and expects economic growth to pick up again next year. Joining us now is Dawn Desjardins, chief economist at Deloitte. It’s great to have you join us. Good morning.
DAWN: Good morning, Lindsay.
LINDSAY: You say we are not in recession territory. How would you describe the current state of Canada’s economy right now?
DAWN: Well, we’re stagnant. I’m not going to overstate how our economy is performing. In particular, some industries are being heavily damaged by tariffs, and we’re certainly seeing weakness in those industries. But overall, when we look across Canada on an industry basis, the majority of industries are continuing to grow rather than contract.
LINDSAY: Okay. I do want to talk about tariffs, but business investment remains subdued at the moment. What does this mean for Canada’s productivity going forward?
DAWN: Well, at the moment, you’re right, it does remain very subdued. But we think there are lots of policies in the pipeline that are going to help restore business confidence. We know Canadian companies are cautious right now, which is a very sensible approach at this stage, but we also know they have lots of liquidity on their balance sheets, so they’re really keeping things tight.
From what we’re hearing, they’re investigating how they should structure their supply chains and what new global partners they should be looking to in order to sell their goods. So, yes, right now we’re not seeing a lot of activity in terms of business investment. Though I have to say, notably, we have seen some investment in software. That suggests Canadian businesses are increasing productivity by using software to deliver their goods and services.
We also think that as some of the hurdles to investment — whether it’s interprovincial trade barriers or long delays in obtaining building permits — begin to ease, Canadian businesses will actually start putting some of that money to work.
LINDSAY: On that note, in terms of the investment hurdles you just mentioned, where do you see the greatest opportunity for growth in the Canadian economy right now?
DAWN: Well, if you look across the economy, particularly in natural resources, we’d say there are lots of opportunities. When we think about our review of the trade agreement with the U.S., our forecast assumes Canada continues to have relatively tariff-free access to the U.S. market.
Some industries, as I said — steel, aluminum, lumber and finished autos — are still struggling. But moving forward, retaining access to the U.S. market suggests demand will persist or even grow. That should give Canadian businesses renewed confidence and, as I said, encourage them to put some money to work.
LINDSAY: You mentioned you’ve factored continued access to the U.S. market into your forecast. But how have you accounted for uncertainty around CUSMA negotiations, given the ongoing talks?
DAWN: I have to say that’s probably the biggest challenge for any forecast right now. If our assumption proves to be wrong and Canada doesn’t retain access to the U.S. market, we’d have a much more difficult road ahead.
But when we look at confidence measures, we’re starting to see traction from government policies. Are governments getting money into the economy? Are they creating opportunities for businesses to participate in or complement those investments? That’s where we begin to see a stronger domestic engine for economic activity and business investment because there are many opportunities.
LINDSAY: On a different note, you’re expecting the unemployment rate to begin declining in 2027. What do you expect will drive that improvement?
DAWN: As the economy gains momentum, we expect job growth to accelerate modestly. But we also have to acknowledge that, because of changes to immigration policy, Canada’s population is declining. So when we’re thinking about the unemployment rate, it doesn’t take a great deal of job creation to lower it if the labour force isn’t growing. We still expect modest employment growth, and that should reduce the unemployment rate.
LINDSAY: What about housing? How concerned are you about housing remaining a drag on Canada’s growth next year? We’ve seen somewhat more positive numbers lately, but is it still a concern?
DAWN: I think it depends where you are and which part of the market you’re looking at. In large cities like Toronto and Vancouver, we continue to see significant weakness in the condominium market, and that doesn’t appear to be easing.
But in other segments of the housing market, we’re starting to see decent demand. It really becomes a chain reaction. If business confidence improves and hiring picks up — it doesn’t have to be a lot of hiring — that should ease some of the concerns Canadian consumers have. We think that growing confidence could become the catalyst for the housing market. But overall, the housing recovery has been very slow, probably slower than most people expected.
LINDSAY: Lastly, energy prices have been a major topic of discussion over the past couple of months. You’re expecting the Bank of Canada to hold interest rates until the end of the year unless higher energy prices persist. What would the consequences be for the Canadian economy if higher prices continued over the next few months?
DAWN: Certainly, that would increase the risk that inflation spreads beyond energy into other parts of the economy. In that environment, the Bank of Canada would likely pivot and respond more aggressively.
That isn’t our base case. When we look at the inflation data, the headline rate is relatively high at 3.2 per cent, but beneath the surface it’s largely being driven by energy prices. As energy prices have recently started to decline, we think that supports the view that inflation won’t spread more broadly through the economy. That leaves the Bank of Canada with room to maintain the policy rate at its current level.
LINDSAY: We’ll have to leave it there. Dawn Desjardins, chief economist at Deloitte, thanks so much for joining us.
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This BNN Bloomberg summary and transcript of the June 25, 2026 interview with Dawn Desjardins are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
