Deloitte slashes Canada’s growth forecast amid trade tensions

Deloitte Canada has lowered its 2027 economic growth forecast for the country, citing persistent weakness in key sectors and trade tensions with the United States. The revised projection of 1.6% for next year marks a 0.4 percentage point cut from its June estimate of 2%, while the 2026 outlook was raised slightly to 0.9%. The downgrade reflects a sluggish July performance, where Canada’s real GDP remained flat as 10 of 20 industrial sectors expanded but declines in manufacturing, mining, and retail trade offset gains in construction and utilities.

The July stagnation came despite a 0.2% advance estimate for August, with construction up 1.3% and utilities 1.7%. However, manufacturing dropped 0.9%, and retail trade fell 1.0%. Deloitte’s chief economist, Dawn Desjardins, tied the downgrade to trade friction, including the US Section 338 tariffs and Canada’s reciprocal measures, which took effect in early September. The outlook excludes further escalation, such as the US ban on certain Canadian goods effective this week.

Economists remain divided on whether July’s slowdown signals a broader trend. Abbey Xu of RBC Economics noted that the decline may be temporary. Jasleen Kaur Trehan of the Business Data Lab suggested third-quarter growth could still reach 2% annualized. The Bank of Canada, which has held rates at 2.25% for nearly a year, faces pressure from both inflation and trade risks. Deputy governor Toni Gravelle described the central bank’s position as a “true dilemma” between managing energy price shocks and trade disputes.

Market expectations for an October rate hike stand at 53%. The Canadian dollar remained steady at 1.4175 per US dollar, roughly 70.55 US cents, amid the uncertainty. While some analysts, like Benjamin Reitzes of BMO Capital Markets, describe the economy as “hanging in there”, the downgrade shows how trade policies and domestic investment trends are weighing on growth.

The next key data points, September jobs figures on October 9 and inflation data on October 19, will shape whether the slowdown persists or proves temporary. For now, Deloitte’s revision reflects a more cautious outlook, with business investment identified as the weakest link in the economy.