After a year of weakness, Canada’s economy is showing signs of improvement. Growth is expected to pick up, and inflation eases gradually from its recent peak. Uncertainty is still high.

Economic growth in Canada has been weak but is set to pick up. Headline inflation has risen above 3%. If oil prices and gasoline refinery margins decline as assumed, inflation should ease in the coming months. Inflation excluding gasoline remains near 2%.

Trade within North America remains mostly free of tariffs, but some industries have been heavily affected by sector-specific measures. Oil prices are assumed to decline.

Economic growth is expected to pick up over the projection horizon, rising above potential output growth. Inflation is elevated in the near term before returning to target as cost pressures fade and excess capacity is absorbed.

The war in the Middle East has pushed up inflation around the world and is weighing on global economic activity. But oil prices have fallen from their peak, and inflation is expected to ease. Investment in AI is boosting global growth.

The outlook for Canadian growth is broadly unchanged. After a weaker-than-expected start to 2026, GDP growth is projected to be slightly stronger in 2027 and 2028. Although near-term inflation has been a bit higher than anticipated, the outlook for inflation is little changed.

The evolution of Canada’s trade relationship with the United States and the war in the Middle East remain the two most important risks to the outlook for inflation.