Canada Economics and Macro Strategy Mid-Year Outlook: Waiting for Growth

Research evidence excerpt

Canada Economics and Macro Strategy Mid-Year Outlook: Waiting for Growth

North America Insight

May 21, 2026 07:59 AM GMT

Morgan Stanley & Co. LLCMCanada Economics and Macro Strategy Mid-Year Arunima Sinha

Outlook Global Economist

Arunima.Sinha@morganstanley.com +1 212 761-4125

Mayank Phadke, CFA

EconomistWaiting for Growth Mayank.Phadke@morganstanley.com +1 212 761-1531

Molly Nickolin

Trade policy uncertainty and weak productivity weigh on growth Strategist

Molly.Nickolin@morganstanley.com +1 212 761-3592

in 2026. We expect the BoC to remain on hold through end- Andrew M Watrous

2027 as inflation remains range-bound. Persistently high oil StrategistAndrew.Watrous@morganstanley.com +1 212 761-5287

prices could force hikes; an oil-led global slowdown or adverse

USMCA outcome could prompt renewed easing.

Key Takeaways

Structural headwinds from US trade tensions, USMCA uncertainty, slower

population growth, and weak productivity keep growth subdued through 2026.

Government spending remains the key stabilizer, while consumption, investment,

and exports all remain constrained.

Headline inflation rises temporarily toward 3% on energy costs, but excess

supply, fading tariff pass-through, and cooling shelter inflation keep core

contained.

Slower population growth lowers the breakeven pace of job creation, leaving

employment growth low to negative while the unemployment rate moves

sideways.

We expect the BoC to remain on hold through 2026 and 2027, looking through

temporary energy-driven inflation as core inflation and expectations remain

Risks are two-sided: persistent oil prices could eventually force hikes, while an

oil-led global slowdown or adverse USMCA outcome could prompt renewed

easing.

FX: We see USD/CAD remaining range-bound between 1.35–1.37 through 2026