Richter’s Canada Economic Forecast 2026: Navigating Trade Uncertainty, Rates, and Housing
Richter’s annual Economic Forecast featured an in-depth discussion with Benjamin Tal, Managing Director and Deputy Chief Economist at CIBC Capital and World Markets for a discussion on the economic forces shaping Canada’s outlook in 2026. Hosted by Matthew Fantauzzi and Shahaf Ozgaon, Partners at Richter, the conversation covered ongoing trade uncertainty, the interest-rate outlook, housing conditions, AI-driven investments, and how this could shape the landscape for Canadian businesses and families. This article will highlight the key themes and insights shared during the discussion.
TARIFFS, TRADE AND THE 2026 REVIEW
Trade policy remains a key swing factor for Canada this year. While tariff headlines have been prominent, a significant share of Canada–U.S. commerce continues to flow under USMCA/CUSMA protections. The discussion pointed to an effective tariff impact on Canada closer to 8%, largely because many transactions remain outside the tariff framework.
Expect Pressure To Be Selective
Rather than broad-based tariffs across the economy, trade pressure is expected to remain focused on specific sectors. The steel and automotive industries were flagged as ongoing sensitivities. The aluminum industry may be harder to sustain as a pressure point given U.S. dependence on Canadian supply, while dairy and lumber can re-emerge as recurring negotiation flashpoints.
Diversification is Real, But Incremental
Diversifying trade relationships remain a logical objective, but one that is difficult to achieve in practice. Distance and cost constraints limit the scale of diversification, and Canada’s reliance on the U.S. is expected to remain significant in the near term.
Uncertainty Hits Confidence First
Even when the direct tariff impact is limited, uncertainty can delay hiring and investment decisions. A clearer policy path, even if imperfect, can lead to a rapid change the tone of the economy.
THE BANK OF CANADA
Inflation
Inflation is less of a near-term constraint than it was a year ago, while growth remains soft. The outlook referenced fourth-quarter GDP as expected to be close to zero and unemployment to remains relatively elevated.
Interest Rates
The Bank of Canada was described as being done adjusting interest rates for now. The overnight rate at 2.25% is expected to remain steady for a while, and the next surprise (if any) is more likely down than up. Rate hikes are not expected to come back into the conversation until mid-2027.
RECESSION AND ECONOMIC PROJECTIONS
The tone on recession risk was cautious but not alarmist. Canada may not be in a textbook recession, but it can still feel recessionary on a per capita basis when growth is close to flat. With GDP hovering near zero, it doesn’t take much to tip the economy into a recession.
Fiscal policy was discussed as less likely to provide immediate lift, with much of the spending directed towards longer-term investment. As a result, monetary policy is positioned as the primary tool for near-term stabilization, particularly as housing and business investment attempt to normalize.
HOUSING, AFFORTABILITY AND MORTGAGE RENEWALS
Housing remains as a constraint on the Canadian economy. Development has slowed, with activity driven towards completions rather than new starts, and the economy continues to feel the weight of housing inactivity.
Condo Versus Low Rise: A Split Market
The condo market was characterized as being in a recession, with smaller units experiencing deeper downturn. This market is not expected to normalize in 2026, or even 2027, with continued price pressure noted for Toronto and Vancouver, as well as for Montreal and Ottawa. By contrast, the single-family home market was described as fine, supported by limited inventory and underlying demand.
Affordability and Supply
High housing delivery costs were identified as a central constraint to new construction. Developers are unwilling to build when projects are not economically viable, limiting new supply and contributing to adorability pressures. Measures to reduce construction and development costs were highlighted as key to relieving the housing crisis.
Renewals and Payment Shock
Mortgage renewals in 2026 were identified as more challenging than prior years. Refinancing is hard as the interest rates are higher than five years ago, and prices in parts of B.C. and Ontario are down, narrowing the refinancing window. An estimated 5% to 6% of the mortgage market could face more than a 40% increase in payments.
Lenders are intervening earlier and extending amortization periods, in some cases up to 40 years, to mitigate payment shock. While early-stage delinquency rates may rise, broader financial stability concerns were not emphasized.
LABOUR, AI AND PRODUCTIVITY
AI was framed as a long arc: often overestimated in the short term and underestimated in the long term. Over time, adoption is likely to widen gaps between organizations that invest and those who do not, with the most meaningful shifts expected to play out over the next five to ten years.
The Practical Takeaway
AI is described as a tool rather than a direct substitute for jobs. However, individuals who use AI will effectively outperform those who do not. In the context of the weak productivity growth in Canada, the implication is clear: adoption and investment are becoming more urgent for competitiveness.
LOOKING AHEAD: UNCERTAINTY AND ECONOMIC PATHWAYS
The outlook for 2026 is shaped by ongoing uncertainty, particularly around trade policy, confidence, interest rate expectations, and housing supply realities.
Key items include whether trade outcomes will remain contained or broaden, whether rates will stay steady or drift down if growth weakens, and whether policy changes will meaningfully reduce the cost and timeline of building new housing. Mortgage renewals were also highlighted as an area of focus, particularly among the 5% to 6% facing more than a 40% payment increase, and lastly, whether AI adoption is accelerating quickly enough to improve productivity over the medium term.
For businesses and families navigating these economic dynamics, Richter’s team works closely with clients to assess exposure, plan ahead, and identify opportunities amid uncertainty. To discuss how these insights may apply to your situation, connect with Matthew Fantauzzi, Partner, Tax or Shahaf Ozgaon, Partner, Audit.
