Deloitte Canada has shaved 20 per cent off its growth forecast for Canada’s economy in 2026, citing an increasingly tough environment for consumers and businesses.

The big four accounting firm predicts soaring energy prices linked to war in the Middle East will weigh on consumer spending, adding to a laundry list of economic challenges and uncertainties stretching from foreign trade to a soft labour market.

That said, chief economist Dawn Desjardins says she is cautiously optimistic these trends will abate toward the back half of the year.

“We’re making a couple of pretty big assumptions. One is that the energy market disruption will moderate over the next few months,” she told Yahoo Finance Canada in an interview.

In a report published on Thursday, Deloitte Canada says real GDP (gross domestic product) is set to grow 1.2 per cent this year, after booking a 1.7 per cent gain in 2025. In January, the firm had called for GDP to rise by 1.5 per cent.

The U.S. crude benchmark climbed by double-digits on Thursday, the day after U.S. President Trump delivered a televised speech indicating the war in Iran could escalate, and potentially end without a deal securing safe passage for fuel shipments through the Strait of Hormuz.

The conflict has roiled global energy markets since its start in late February, causing a surge in prices for a wide array of commodities, from oil and LNG to fertilizers for farmers.

In Canada, The average price for a litre of regular gasoline has risen 30 per cent since the war started. Fuel industry experts say prices will remain high through the summer travel season.

However, Desjardins says futures contracts for oil show commodity traders are betting on falling prices. For example, the August 2026 contract for West Texas Intermediate (CL=F) crude has a price of about US$81 per barrel. The February 2027 contract has a price of about US$71.

“Prices don’t go back to where they were prior to the crisis that quickly, but nonetheless, we see some easing on energy prices,” Desjardins said, speaking prior to Trump’s speech on Wednesday.

“We do see growth in the provinces that produce energy being faster than other provinces,” she added. “Overall, we still have reduced our forecast for all provinces compared to last year.”

On Thursday, RBC’s head of global commodity research warned Trump’s speech on Wednesday clearly signals the administration does not intend to assume responsibility for reopening the Strait of Hormuz.

“We continue to warn that this will be a prolonged disruption situation, with deepening economic costs,” Helima Croft wrote. “We think the irrational optimism about the imminent reopening of the Strait will fade in the coming weeks.”

Deloitte Canada’s outlook for Canada’s economy continues to assume “status-quo” trade with the United States this year.

“This forecast assumes that most Canadian goods exports will continue to avoid tariffs, and that the CUSMA review will pass without major alteration,” the firm wrote in its report published on Thursday.

“We are retaining the industry-specific tariffs in our baseline assumption, which opens the door to a stronger outcome should they be removed.”

The Canada-U.S. trade file took a backseat to energy last month, as Bank of Canada policymakers discussed their latest rate decision. Canada’s central bank has held its overnight interest rate steady at 2.25 per cent since October.

Deloitte Canada predicts the central bank will remain on hold throughout 2026.

“The Bank of Canada is sort of looking at how they’re supposed to thread that needle. You’ve got energy prices that could drive the headline inflation rate up, but the core measures remain subdued, because we have so much spare capacity in the economy,” Desjardins said.

“We’re seeing an economy that’s wobbly.”

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on X @jefflagerquist.