As we limp through the remaining days of 2025\u2014one of the most economically hair-raising years in recent history\u2014our economics team already has their eyes firmly on what\u2019s coming in 2026, from trade and markets to defence and manufacturing. <\/p>\n
Plus, we talked to five CEOs and economists about what\u2019s ahead. And in case you\u2019re curious what AI sees on the economic horizon, we asked. The answers might surprise (or terrify) you.<\/p>\n
Upside <\/p>\n
In the face of rising costs, saner heads prevail in Washington, and the Trump administration tacos\u2014er, sorry, recognizes the benefits of continental free trade to U.S. consumers and manufacturers. To renew the United States-Mexico-Canada Agreement (USMCA), Canada makes concessions in some industries, in particular dairy, that give the president the opportunity to claim victory while inflicting minimal pain at home.<\/p>\n
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Downside <\/p>\n
The downside risks for Canada\u2019s trade with the U.S. run the gamut. Trump could pull the plug on the three-decade-long North American free trade experiment, and though that wouldn\u2019t immediately terminate the agreement, it would amp up the level of uncertainty and seriously threaten investment in this country. Even if Trump just scales back exemptions that currently allow 90% of Canadian USMCA-certified imports to enter duty free, it could cripple Canadian exports that were already down sharply going into the year. <\/p>\n
Upside <\/p>\n
The Carney government is trying to double non-U.S. exports over the next decade and takes a meaningful step toward that goal in 2026. Traditionally, around three-quarters of goods exported wind up in the U.S., but that slips below 70% as companies find new markets. The country does a better job of leveraging its trade deals with Europe and the Pacific Rim, and makes headway on new agreements in South America, Southeast Asia and beyond. What\u2019s more, Canada smooths over its tensions with China, unlocking exports of agriculture products like canola and lobster.<\/p>\n
Downside <\/p>\n
Sorry, but geography is destiny. Canada may be on the doorstep of the world\u2019s most powerful economy, but it\u2019s fairly isolated from everyone else. And that means exports to non-U.S. markets don\u2019t show much improvement. If anything, this harsh reality underscores the importance of the USMCA and getting the best deal possible.<\/p>\n
Upside <\/p>\n
The new Major Projects Office hits the ground running. The federal initiative, which aims to streamline and expedite the approvals process for large infrastructure projects, gives the green light to developments that spark the Canadian economy over the long term. And crucially, these projects get buy-in from various stakeholders, including the provinces and Indigenous groups.<\/p>\n
Downside <\/p>\n
The Major Projects Office looks more like a branding exercise. There\u2019s no backlog of shovel-ready developments that are stuck in red-tape purgatory, and Ottawa\u2019s initial list of five projects for review have largely received the necessary approvals (some have even broken ground). The Carney government will claim some early wins, but on second glance, the country hasn\u2019t morphed into an infrastructure-building superpower.<\/p>\n
Upside <\/p>\n
Good news is a matter of perspective. For homeowners, particularly in the stressed markets of southern Ontario and B.C., prices will recover some of their recent losses. For aspiring homeowners, the swoon will continue long enough to get them in the market. Investors will make a cautious return to high-rise developments, leading to more projects in the pipeline. Moreover, Build Canada Homes\u2014a new federal agency to build affordable homes quickly\u2014actually moves the dial on home construction, unlike past government initiatives.<\/p>\n
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Downside <\/p>\n
Home sales and prices remain in the dumps, but affordability doesn\u2019t improve enough to entice new buyers. To make matters worse, the supply crisis only deepens. In July, Canada Mortgage and Housing Corp. projected that housing starts would amount to roughly 220,000 in 2027\u2014a decline of 50,000 from 2021. Cities, meanwhile, continue to gorge on six-figure development charges per unit that effectively keep a lid on new builds.<\/p>\n
Upside <\/p>\n
Companies shake off their trade-war jitters and start hiring again. In turn, the jobless rate\u2014recently hovering around 7%\u2014starts to decline after years of steady increases. A turn in the economic cycle would be particularly beneficial to younger workers (ages 15 to 24), who are contending with an unemployment rate of nearly 15%. Job vacancies, which have been tumbling since 2022, begin to rebound in broad-based fashion, with more opportunities in tech, construction and health care.<\/p>\n
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Downside <\/p>\n
Tariffs get ratcheted up, and companies start laying off more staff. The unemployment rate climbs to 8% (or higher) as the more trade-exposed provinces, like Ontario and Quebec, struggle to sell in non-U.S. markets. With more people out of work, consumer spending hits the skids, sending the economy into recession. Worse yet, the next generation of workers\u2014already struggling with high unemployment\u2014get jaded about the direction of the country and look elsewhere to build careers.<\/p>\n
Upside <\/p>\n
It turns out living up to Canada\u2019s NATO obligations on defence spending pays dividends. As Canada\u2019s new Defence Investment Agency ramps up, Ottawa\u2019s pledge to boost spending by $150 billion to 5% of GDP by 2035 provides a stimulative boost to the economy when Canada needs it most. While helping provide a floor for economic growth, defence procurement revives business investment after years of weakness, while reversing another area where Canada is a perennial laggard: R&D spending.<\/p>\n
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Downside <\/p>\n
We\u2019ve heard this tune about higher government spending before. Whatever short-term growth bump defence spending generates is offset by a staggering increase in the federal deficit that weighs on investor confidence. Waste, mismanagement and other scandals that inevitably come with large-scale defence contracts promise to make the word \u201cboondoggle\u201d popular again.<\/p>\n
Upside <\/p>\n
The good times keep rolling in equity markets. Not only do stock prices continue rising, but they justify the sky-high valuations that invite comparisons to the dot-com crash. Earnings growth is strong, powered by major investments in artificial intelligence that pay off. The Federal Reserve delivers a handful of rate cuts that help Americans spend and companies invest, despite the high costs imposed by tariffs. And because stocks are rallying, everyone gets wealthier\u2014even more reason to make big purchases that power the economy.<\/p>\n
Downside <\/p>\n
The good times end. Abruptly. The Shiller price-to-earnings ratio\u2014a popular measure of share valuations\u2014says we\u2019re back to exorbitant levels seen in late 1999. (Not long after, the stock market cratered.) Maybe the AI investment boom goes bust, or maybe protectionist trade policies result in stagflation. Either way, any drastic loss of paper wealth could force consumers to tighten their belts.<\/p>\n
Upside <\/p>\n
In year one of Trump\u2019s trade war, and despite headlines about plant closures, employment in Canada\u2019s manufacturing sector held up reasonably well (even if manufacturing sales faltered). Things look up in 2026 as exporters take greater advantage of USMCA exemptions from U.S. tariffs unavailable to other countries.<\/p>\n
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Downside <\/p>\n
The former Trudeau government placed all its industrial bets on electric vehicles and batteries, throwing tens of billions at companies to build plants here. That bet continues to unwind in 2026, compounded by Trump\u2019s widening use of sectoral tariffs to compel businesses to shutter factories here and move operations south of the border.<\/p>\n
Upside <\/p>\n
The world, and the U.S. in particular, needs what Canada has. After years of neglecting Canada\u2019s resource wealth, the federal government\u2019s critical-mineral strategy and openness to new pipeline projects revives investment in the sector. Even with the automakers pulling back from EVs, demand for critical minerals like lithium and nickel for batteries, electronics and defence technologies stays strong. This all gives Canada a powerful card to play in trade talks with the Trump administration.<\/p>\n
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Downside <\/p>\n
There\u2019s saying and then there\u2019s doing. For all the talk of fast-tracking major projects, a familiar combination of red tape, interprovincial wrangling and Indigenous land claims disputes pour cold water on Canada\u2019s energy and mineral superpower ambitions. Capital spending and employment in those industries remain below decade-ago levels. Cue more Western resentment.<\/p>\n
Upside <\/p>\n
Two years after the Bank of Canada\u2019s senior deputy governor, Carolyn Rogers, said it was \u201ctime to break the glass\u201d on Canada\u2019s low-productivity emergency, AI begins to show its value. Rather than being a job destroyer, as many fear, AI investment allows Canadian companies to close the productivity gap with the U.S. Ottawa also finally embraces AI to solve service problems at the Canada Revenue Agency and other departments\u2014a few hallucinated tax returns aside.<\/p>\n
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Downside <\/p>\n
The dystopian warnings about AI layoffs are true. As more companies adopt AI, they\u2019re able to downsize whole departments of white-collar workers. The result: higher unemployment and elevated office vacancy rates in major cities. Despite the technology\u2019s adoption, strained valuations of AI stocks threaten a market correction akin to the dot-com crash.<\/p>\n
Upside <\/p>\n
The federal government holds Team Canada together in its talks with the U.S., keeping squabbling provinces in check through a combination of support measures for struggling industries and generational infrastructure projects. This all may strain Canada\u2019s fiscal health, but we\u2019re in a far better position than most countries. The International Monetary Fund expects the country\u2019s general government deficit to come in at -2.4% of GDP next year, well below the G7 average of -6%, while the U.S. faces a -7.9% deficit.<\/p>\n
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Downside <\/p>\n
A surge in deficit spending, in combination with a weakening economy, stagnant population growth and low investment, trigger a fiscal crisis that puts Canada\u2019s cherished AAA debt rating at serious risk. Ottawa is forced to slash spending and raise taxes, further compounding the growth crisis brought on by the trade war with the U.S. and sparking a political crisis that threatens to topple Carney\u2019s minority government. <\/p>\n
ASK AI<\/p>\n
In a year when AI has dominated just about every conversation, we decided to ask two prominent models\u2014OpenAI\u2019s ChatGPT and Anthropic\u2019s Claude\u2014for their economic predictions for 2026. Their (edited) answers were broadly on the optimistic side. But they were also frank (and frankly terrifying) about the risks of failure.<\/p>\n
Will Canada, the U.S. and Mexico successfully negotiate a new USMCA deal? <\/p>\n
Claude: There\u2019s a 70% chance of a successful renewal, but it will be substantially modified, with tighter rules on shipments of Chinese goods coming to the U.S. through third countries, trade access linked to border security and changes to automotive content rules.<\/p>\n
ChatGPT: Yes, with a 65% probability of success. There will be early agreement on auto rules and labour enforcement procedures, but the probability of success drops to 35% if \u201cU.S. demands expand beyond USMCA scope\u201d\u2014for instance, new sectoral quotas, or broader linkages with immigration or security.<\/p>\n
What will Canada have to give up to secure a new deal?<\/p>\n
Claude: \u201cCanada is negotiating from weakness. Canada will give up significant economic sovereignty, particularly around defence spending, China policy and dairy market access. Even with all these concessions, Canada will still face sectoral tariffs.\u201d<\/p>\n
ChatGPT: For dairy, expect Canada to rewrite allocation rules (again) so a larger share is contestable by U.S. exporters, and top up a bit more quota in a few categories. Canada accepts \u201ctighter reporting\/verification\u201d of how to count core-parts content under auto rules of origin.<\/p>\n
Where will the S&P\/TSX and the S&P 500 close at the end of 2026? <\/p>\n
Claude: 35,000, with a range of 34,000 to 36,000 (a 17% change from Nov. 6 price). \u201cThis assumes no major escalation in trade tensions and that interest rates remain supportive.\u201d<\/p>\n
ChatGPT: 33,800, with a range of 25,000 to 39,000 (up 13% from Nov. 6 price). \u201cConsensus earlier this year saw ~30K by end-2026; with rates lower now and earnings holding up, I\u2019m nudging above that.\u201d<\/p>\n
What will AI do to the level of employment in Canada in 2026?<\/p>\n
Claude: \u201cThere will be very little job loss in 2026 due to AI. Any job losses will be overwhelmingly due to the trade war and economic slowdown, not AI.\u201d<\/p>\n
ChatGPT: \u201cI expect AI to be neutral to slightly positive for employment. There will be reallocation inside white-collar services,\u201d but a \u201cbroad macro slowdown from trade shocks would swamp AI\u2019s effect on employment.\u201d<\/p>\n
If you required sleep, what would keep you up at night? <\/p>\n
Claude: \u201cThe USMCA cliff edge. If its future is uncertain, every multinational with operations in Canada starts quietly planning their exit. <\/p>\n
2026: USMCA talks stall or produce only a temporary deal.2027: Foreign direct investment to Canada drops 40% to 60%.2027-2028: Manufacturing quietly relocates south.2028: Canadian dollar crashes.2029: Jobless rate hits 9% to 10% despite no \u2018official\u2019 crisis.2030: Canada becomes permanently poorer. <\/p>\n
It\u2018s not the recession. They end. It\u2018s not the tariffs\u2014they can be negotiated. Once capital leaves, once talent emigrates, once Canada accepts permanent second-tier status, you don\u2019t get it back.\u201d<\/p>\n
ChatGPT: A policy-driven trade shock with the USMCA review going sideways and snowballing into a tariff\/retaliation spiral. What to watch for: Bank of Canada rhetoric shifting from \u201corderly disinflation\u201d to \u201ctrade-shock vigilance.\u201d<\/p>\n
ASK HUMANSOpen this photo in gallery:<\/a><\/p>\n Laurent Ferreira, president and CEO of National Bank of Canada.Christinne Muschi\/The Globe and Mail<\/p>\n Laurent Ferreira, CEO, National Bank of Canada<\/p>\n \u201dAs we look to 2026, Canada\u2019s competitiveness hinges on restoring regulatory certainty and rebuilding investor confidence. After years of stagnation, our industrial base now ranks outside the world\u2019s top 20 industrially competitive nations, held back by cumbersome regulations and an uncompetitive tax system.<\/p>\n The passing of Bill C-5 is a welcome step toward faster nation-building projects, and the budget proposed by Ottawa signals a shift from the past 10 years. But we need a broader effort that reduces administrative burdens, creates a more competitive tax environment, and provides clear and stable conditions for private investment. Pragmatic deregulation and smarter taxation can reignite growth, revitalize our industrial capacity and position Canada for a new era of economic leadership.\u201c<\/p>\n Open this photo in gallery:<\/a><\/p>\n Jimmy Jean, chief economist and strategist at Desjardins.Christinne Muschi\/The Globe and Mail<\/p>\n Jimmy Jean, Chief economist and strategist, Desjardins <\/p>\n \u201dSince the beginning of the decade, Canada has seen construction costs soar by nearly 68%, about four times the pace of overall inflation. Pandemic disruptions were a factor, but that\u2019s no excuse: Construction prices haven\u2019t surged as much elsewhere. This is another manifestation of our chronic productivity problem.<\/p>\n An hour of work in construction today produces about the same real value added as 25 years ago, yet wages have steadily risen. Workers are clawing back their loss of purchasing power, and with persistent labour shortages, they have the upper hand in bargaining. Stagnant productivity combined with higher pay means soaring unit labour costs.<\/p>\n This illustrates a basic economic mechanism: When productivity stagnates, costs eventually explode. Left unaddressed, this fuels inflation, worsens housing affordability and erodes purchasing power. But it also drives up the cost of capital projects. For a manufacturer considering expanding its facilities (say, to diversify its export markets), the surge in domestic costs will play against making that decision. And for a government investing in nation-building projects, the bill will be even steeper, making many of these projects uneconomical.\u201c<\/p>\n