Week of January 23 2026
Here are the main Canadian economic themes and headlines shaping this week, with context and explanation for each.
1. 2026 growth outlook: slower, fragile expansion
Deloitte’s early‑2026 outlook signals that Canada is likely to see modest but slower economic growth this year, with GDP projected around 1.5% versus about 1.7% in 2025. Recent monthly data already showed GDP contracting by 0.3% in October, underscoring that the economy entered 2026 with weak momentum.
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The drivers of weakness include ongoing trade tensions and tariffs, which are weighing on exports and business investment, particularly in trade‑exposed manufacturing and resource sectors.
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Deloitte stresses that Canada must improve productivity to raise long‑term growth, highlighting issues such as low business investment in machinery, technology, and innovation.
What this means:
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Growth near 1.5% is below Canada’s long‑run potential, so unemployment risks stay elevated and government revenues grow more slowly.
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For households, a weak backdrop tends to limit wage growth and job creation, even if outright recession is avoided.
2. Trade deal with China: EVs vs. canola tariffs
A major development this month is a new trade agreement between Canada and China that mixes industrial policy with agriculture and climate priorities.
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Canada agreed to admit up to 49,000 Chinese electric vehicles annually at a tariff of 6.1%, far below the 100% tariff imposed in 2024. This quota is small relative to all new vehicle sales (about 3%), but large in the EV segment (roughly 30% of EV sales), so it can materially reshape the EV market.
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In exchange, China will sharply cut tariffs on Canadian canola seed from about 84% to around 15%, while tariffs on canola oil and meal are eliminated through year‑end, bringing the average duty on canola exports down to roughly 12%.
What this means:
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For agriculture, lower canola tariffs are a clear positive, supporting farm incomes and export volumes, especially in the Prairies.
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For autos and EV producers in Canada and allied countries, the inflow of cheaper Chinese EVs boosts consumer choice and accelerates adoption, but intensifies competitive pressure on domestic manufacturers.
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Politically, this marks a thaw in Canada‑China economic relations and dovetails with broader collaboration commitments in energy, clean tech, and “climate competitiveness.”
3. Inflation: headline uptick, core pressures easing
Latest data for December show Canada’s headline inflation rate rising to about 2.4%, but the increase is largely due to technical “base effects” from the expiry of temporary GST/HST relief rather than renewed price momentum.
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Core inflation measures (CPI‑trim and CPI‑median) have fallen to their lowest levels in several years, indicating that underlying price pressures are softening.
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Some specific categories, such as air travel, saw a notable month‑to‑month jump driven by seasonal patterns and limited capacity, but broad categories like health, personal care, and recreation show much less inflation than in prior years.
What this means for the Bank of Canada:
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With headline inflation near but slightly above the 2% target and core measures trending down, markets expect the Bank of Canada to hold its policy rate at the upcoming January 28 meeting rather than cut immediately.
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Businesses report higher input costs but limited ability to raise selling prices, suggesting squeezed margins and cautious hiring plans, which is consistent with a slowing but not collapsing economy.
4. Consumer sentiment: still anxious despite improving indicators
The Bank of Canada’s latest survey of consumer expectations (mid‑January) finds that many Canadians remain worried about high prices and economic uncertainty, particularly linked to the ongoing U.S. trade conflict.
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Even though some hard indicators—like inflation moderating and GDP avoiding a deep recession—have improved relative to earlier fears, households still perceive the economy as weak.
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This anxiety translates into cautious spending intentions, as many consumers say they plan to cut back or delay major purchases.
Why this matters:
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Weak sentiment can reinforce slow growth: if households save more and spend less, retail activity, housing‑related consumption, and discretionary services all face headwinds.
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For policymakers, this gap between improving macro indicators and pessimistic public perception makes communication and credibility particularly important.
5. Housing: mixed signals, softer market ahead
Recent housing data give a nuanced picture: housing starts are running above recent trends, but existing home sales have fallen for two straight months, and listings are also down.
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A quality‑adjusted home price index is now about 4% lower than a year earlier, pointing to a cooling market rather than a sharp crash.
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Forecasts from private‑sector economists expect a softer housing market in 2026, reflecting slower population growth, sluggish economic conditions, and cautious buyers after the rapid price gains and rate volatility of prior years.
Implications for households and policy:
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For current homeowners, flat to slightly declining prices can limit home‑equity borrowing and weigh on perceived wealth.
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For prospective buyers (including in Toronto), a cooling market paired with slightly lower mortgage rates later in 2026 could improve affordability, though income growth and tighter lending standards remain constraints.
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