Mid-year review: Weak growth, steady BoC

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Mid-year review: Weak growth, steady BoC

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Canada Viewpoint

Canada is in a technical recession 30 June 2026

Canada is in a technical recession, with GDP contracting in late 2025 and early 2026 Economics

amid weaker trade and subdued investment. We expect growth to slow to 0.6% in 2026 Canada

from 1.5% in 2025, before recovering to 1.5% in 2027. Consumption and inventories Carlos Capistran

have provided some support, with a temporary boost from the 2026 FIFA World Cup, but LatAm and Canada Economist

investment and labor markets remain soft. Risks are balanced between support from BofAS+1 646 743 2921

higher oil prices and fiscal expansion, and headwinds from USMCA uncertainty and carlos.capistran@bofa.com

higher US interest rates. Canada Economics

BofAS

Global Economics TeamTrade uncertainty set to persist BofAS

Canada faces elevated uncertainty ahead of the USMCA review. While Canada and

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Mexico favor an extension, our baseline is that none will be agreed on July 1. USMCA

would remain in force but move to annual reviews and expire in 2036 unless extended.

Meanwhile, tariffs on autos, steel, and aluminum are likely to remain, keeping trade

uncertainty high and weighing on investment.

Core inflation is contained

Inflation remains above the 2% target, reaching 3.2% in May, but core inflation is at

2.1%, indicating that temporary factors are driving the increase. The recent rise in

headline inflation has been largely due to higher gasoline prices linked to supply

uncertainty from Middle East tensions, which may ease as conditions stabilize. Core

measures, including CPI-trim at 2.0%, remain near target, supported by weak economic

activity and a soft labor market. We expect headline inflation to stay near 3% in the