Economic growth in Canada is projected to slow this year but rebound slightly in 2026 as inflation holds steady near current levels. That’s according to the latest Economic Outlook report from the Organisation for Economic Co-operation and Development (OECD), released Tuesday. The OECD projects Canadian real gross domestic product (GDP) growth of 1.1 per cent this year and 1.2 per cent in 2026. Real GDP grew at a rate of 1.6 per cent last year, according to Statistics Canada (StatCan), matching its pace in 2023. Meanwhile, global GDP growth is projected to slow from 3.3 per cent in 2024 to 3.2 per cent this year and fall further to 2.9 per cent in 2026, as higher tariffs and political uncertainty weigh on investment and international trade, according to the report. South of the border, growth in the so-far resilient U.S. economy is projected to fall sharply by a full percentage point this year, from 2.8 per cent in 2024 to 1.8 per cent, followed by another drop in 2026 when real GDP growth is projected to fall to 1.5 per cent. The expected slowdown to the world’s largest economy is due in large part “to higher tariff rates, moderating net immigration and reductions in the federal government workforce,” according to the report. “China also sees a notable growth deceleration, from 4.9 per cent in 2025 to 4.4 per cent in 2026, as front-loading unwinds, higher tariffs take effect and fiscal support fades,” said the OECD. “Euro area GDP growth (will) experience a smaller but steady slowdown, from 1.2 per cent in 2025 to 1.0 per cent in 2026 with increased trade frictions and geopolitical uncertainty somewhat offset by stronger public investment and easier credit conditions.” ‘Inflation set to ease’ Globally, inflation pressures are projected to moderate in the next two years, according to the report, however it warns inflationary concerns could “resurface” as the pace of disinflation has begun to slow in some economies. “Inflation in most G20 economies is projected to fall as economic growth and labour markets continue to soften,” the report read. “Headline inflation is expected to decline from 3.4 per cent in 2025 to 2.9 per cent in 2026, while core inflation in advanced G20 economies remains broadly stable, easing only slightly from 2.6 per cent to 2.5 per cent.” In Canada, inflation is projected to hover at 2.0 per cent this year and in 2026. Last week, StatCan reported that the Canadian headline inflation rate rose to 1.9 per cent in August from 1.7 per cent in July, as measured by the consumer price index. Among all G7 countries, only Italy and France are projected to experience lower levels of inflation than Canada through the end of 2026. Tariff impacts ‘yet to be felt’ The report notes that global economic growth projections continue to be heavily influenced by the tariffs and trade policies implemented by U.S. President Donald Trump and his administration. “U.S. bilateral tariff rates have increased on almost all countries since May. The overall effective U.S. tariff rate rose to an estimated 19.5 per cent at the end of August, the highest rate since 1933,” the report read. “The full effects of tariff increases have yet to be felt – with many changes being phased in over time and companies initially absorbing some tariff increases through margins – but are becoming increasingly visible in spending choices, labour markets and consumer prices.” For Canada, trade tensions with its southern neighbour have moderated somewhat in recent months, as goods that are compliant with the current North American free trade agreement are able to enter the U.S. tariff free. However, the Canada-United States-Mexico Agreement (CUSMA) is set to be renegotiated next year. In the meantime, Prime Minister Mark Carney’s government is set to unveil its first federal budget under his leadership on Nov. 4. Finance Minister Francois-Philippe Champagne says the budget will present a “generational investment” in Canada’s future as it looks to become less economically dependent on the U.S.
