Economic Overview

The Canadian economy rebounded in recent years and subsequently continued to grow. GDP growth slowed through 2025, and real GDP fell 0.2% in the fourth quarter. Private consumption remained solid, rising 2.3% over the year, but is weak on a per capita basis. Business capital investment rose just 0.3%, while housing investment continued to decline. Overall, real GDP growth was 1.7% in 2025, the slowest annual pace since the 2020 contraction, as U.S. tariffs and slowing population growth outweighed the support from lower policy rates. Real GDP growth is projected to strengthen in 2025 (+2% as per the IMF), held back by tariffs weighing on exports, before recovering to 1.9% in 2027. Private consumption growth is expected to slow due to lower population growth and a weaker labour market. Nevertheless, on February 1, the U.S. announced 25% tariffs on all imports from Canada, except for oil, which would face a 10% tariff. The tariffs have since taken effect. In the fourth quarter of 2025, three in ten manufacturing businesses reported that U.S. tariffs on Canadian goods had a major negative impact on their business (Statistics Canada).

Concerning public finances, lower revenues and new spending measures have led to larger deficits in the fiscal plan, with the 2023-24 deficit finishing at CAD 61.9 billion, or 2.1% of GDP. The 2024-25 deficit then came in at CAD 36.3 billion (1.2% of GDP), before widening again to CAD 66.9 billion in 2025-26 (Department of Finance Canada). The federal government has introduced several spending measures in recent budgets, prioritizing housing affordability and social spending. In November 2024, two new fiscal incentives were announced: a temporary GST/HST rebate for qualifying goods and a CAD 250 tax rebate to be issued in spring 2025. While increased government spending is only partially offset by efficiency gains and higher capital gains taxes, the overall fiscal stance is expected to remain largely unchanged in 2025-26. The debt-to-GDP ratio was estimated at 113.5% in 2025 by the IMF, with a downward trend expected over the forecast horizon (to 109.5% by 2027). According to official governmental figures, on an annual average basis, the Consumer Price Index (CPI) stood at 2.1% in 2025, down from 2.4% in 2024. Excluding energy, the CPI rose 2.6%, compared with 4.5% the previous year. The IMF projects inflation to hover The IMF projects inflation to hover around 2% this year and in 2026.

The unemployment rate rose from 5% at the start of 2023 to 6.8% by December 2025, easing to 6.7% in February 2026 (Statistics Canada). This increase was mainly due to more unemployed individuals struggling to find work and a growing number of new entrants to the labour force without jobs. Layoffs, however, contributed little to the rise. Although Canadians enjoy a high per capita GDP (estimated at USD 55,765 in 2025 – IMF), 11.0% of the population lives in poverty (2024 Canadian Income Survey).

Foreign Trade

Canada is a country open to foreign trade, which represents 64% of its GDP (World Bank, 2025). Product-wise, Canada’s main exports in 2025 were crude oil (18.2%), gold (6.9%), motor cars (5.2%), refined petroleum oils and petroleum gas (2.4% each); whereas imports were led by motor cars (6.9%), goods vehicles (3.6%), parts of motor vehicles (3.3%), gold (2.9%), and refined petroleum oils (2.7% - data Comtrade). In 2025, exports of unwrought gold, silver and platinum group metals jumped by 41.7%, while exports of energy products fell by 6.9%, mainly due to lower prices (Statistics Canada).

The main destinations for Canada’s exports in 2025 were the U.S. (by far the leading partner, accounting for 72.3% of total exports), the United Kingdom (6.0%), China (4.5%), and Japan (1.9%). Nearly half of Canada’s imports had a U.S. origin (45.8%), followed by China (11.5%), Mexico (6.8%), Germany (3.2%), and Japan (2.7% - data Comtrade). The tariffs introduced by the U.S. in 2025 weighed on bilateral trade: goods exports to the United States fell by 5.8% over the year, and the U.S. share of Canadian goods exports dropped from 75.9% in 2024 to 71.7%, its lowest level since the early 1980s. Conversely, exports to countries other than the U.S. rose by 17.2% to an all-time high (Global Affairs Canada, Statistics Canada). Trade tensions escalated further in July 2026, when the U.S. imposed an additional 50% duty under Section 338 of the Tariff Act on certain Canadian goods, through three proclamations linked to disputes over motor vehicles, alcoholic beverages, and dairy; applying from August 2026 without any USMCA exemption, the measure covers nearly USD 20 billion of annual imports, according to the Office of the U.S. Trade Representative.

In 2025, Canada's merchandise exports edged down by 0.2%, while imports rose by 2.8%. As a result, the merchandise trade deficit widened from CAD 7.2 billion in 2024 to CAD 31.3 billion, the largest since 2020 (Statistics Canada). Services exports rose by 3.2% to CAD 239.2 billion in 2025, while imports increased by 2.0% to CAD 234.8 billion, widening the services surplus from CAD 1.5 billion in 2024 to CAD 4.4 billion (Statistics Canada).