Goldman Sachs projects Canada’s economy will rebound in 2026 as trade tensions with the U.S. ease. Economist Joseph Briggs forecasts 1.8% growth, up from 0.8% in 2025, driven by fading tariff headwinds and expansionary fiscal policy. The Bank of Canada’s previous rate cuts are expected to provide a moderate boost.

The 2025 escalation hurt the labor market, forcing the BoC to slash its policy rate by 100 basis points to 2.25%. Briggs now sees unemployment easing to 6.5%. Inflation should cool as retaliatory tariffs are removed, with housing and services softness also containing price pressures.

Growth alone won’t trigger immediate rate hikes. The BoC is expected to hold at 2.25% through 2026, prioritizing stability. The primary risk is the July 2026 USMCA review deadline, which Briggs warns could inject volatility into the fragile recovery.