Canada: Growth returns with domestic support – RBC

Royal Bank of Canada (RBC) economists Nathan Janzen and Claire Fan expect Canada’s Gross Domestic Product (GDP) to rebound in Q1 2026, projecting a 1.7% annualized expansion after a 0.6% contraction in Q4. They highlight stronger domestic demand, reduced drag from inventories, and improving per capita growth, while noting risks from Oil prices and potential U.S. tariffs.

Domestic demand underpins Q1 GDP rebound

"Canada’s economy likely returned to growth in Q1 2026 with gross domestic product bouncing back by an annualized 1.7% after declining 0.6% in Q4, supported by improving domestic growth drivers."

"Details behind the decline in Q4 were less concerning than headlines—domestic demand improved with governments, consumers, and businesses all increasing spending while the offset mainly come from using up inventories, and another decline in residential investment."

"Residential investment will remain a soft spot in Q1 with home resales continuing to decline, but household and government spending have both been picking up and a large inventory subtraction in Q4 is unlikely to be repeated."

"A surge in Q1 imports could leave net exports subtracting about 4 percentage points from growth, but that’s also consistent with firming consumer spending and business investment."

"This remains consistent with our overall expectation that per person economic conditions in Canada should continue to improve in 2026 after rising in 2025 for the first time in three years."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)