Provincial Economic Outlook: The Good, the Bad and the Ugly

It’s been a tough year for Canada and its provinces. But despite the economic volatility and uncertainty, we’ve raised our 2025 and 2026 outlooks for real GDP growth nationally and in central Canada, specifically Ontario and Manitoba. And while we’ve lowered our 2025 growth projection for energy-producing provinces—namely Alberta and Saskatchewan— compared to our June forecast, we now expect all provinces to experience higher real GDP growth next year. 

A better growth forecast is just part of the good news. It stems from the lower effective tariff rate on US imports from Canada than previously projected, paired with an improved US economic outlook. The elimination of counter tariffs on many imports from the US will also help support growth by bringing down prices and providing relief to households and businesses. A broad reduction in internal trade barriers won’t hurt either. The resulting lower interest rates will give a similar tailwind to economic activity. 

Now for the bad news. Despite falling import tariffs and interest rates, the Canadian housing market is on life support, particularly in the most unaffordable provinces—Ontario and British Columbia. In these regions, mortgage arrears are rising rapidly and condo presales are in the dumps. At the same time, market rents are falling fast while rental supply is accelerating. This can in part be linked back to the abrupt reversal in non-permanent resident admissions, a phenomenon which is expected to continue—and possibly accelerate—into 2026. 

That just leaves the ugly, which speaks more to the risks around the outlook than to the immediate reality. Going into the 2026 renewal of CUSMA, there remains a material downside risk that the US administration could ratchet up tariffs on Canadian exports again, in a repeat of 2025. The administration has taken this approach recently with pharmaceuticals. However, provincial governments took precautions for this possibility by being prudent in their budget planning and preparing measures to contend with trade shocks, making them well positioned to weather the storm.