According to economists Matthieu Arseneau and Alexandra Ducharme at the National Bank of Canada (NBC), Canada's real GDP began 2026 on a stronger note, with January growth exceeding expectations and preliminary data indicating a solid gain for the first quarter [1]. Even if the economy stagnated in March, Q1 could still post an annualized growth rate of 1.5% [1]. This would translate to a 2.5% increase in GDP per capita, marking the strongest performance since Q2 2022, despite a current population decline [1].
However, NBC economists caution that the positive GDP figures are set against a fragile backdrop. Labour market indicators remain soft, and policy uncertainty surrounding the renewal of the USMCA agreement continues to dampen business enthusiasm for hiring and investment [1]. Additionally, higher energy costs are expected to offset gains from improved terms of trade, limiting the economy's ability to fully benefit from recent geopolitical developments, despite Canada's status as a net oil exporter [1]. The inverted forward curve of oil prices does not suggest a significant rebound in fossil fuel investment [1].
NBC notes that the Bank of Canada has successfully brought inflation under control, a feat not all central banks have achieved [1]. This allows the Bank to be patient before raising rates, especially given weak housing activity, moderate credit growth, and the anticipated mortgage repayment shock in 2026 [1].
Overall, while the initial growth figures are reassuring, NBC economists stress that sustained momentum is threatened by labour market softness, policy uncertainty, and rising energy costs, keeping the Bank of Canada cautious in its policy approach [1].
CONCLUSION
Canada's economy started 2026 with robust GDP growth, but underlying challenges such as labour market weakness, policy uncertainty, and rising energy costs temper optimism. The Bank of Canada is expected to remain cautious, prioritizing stability over aggressive policy moves. Market participants should watch for further developments in USMCA negotiations and energy price trends.