Canada: Growth resilience and rate risks – RBC

Royal Bank of Canada (RBC) analysts have pointed out that Canada's economy has shown signs of growth resilience, with GDP increasing in the second quarter of 2026 and per-capita growth rising, thanks to lower unemployment rates. U.S. tariffs are only impacting a small portion of trade, but consumer spending is bolstered by a stronger labor market and wage growth.

The Bank of Canada is expected to maintain its current stance through 2026, with potential rate hikes beginning in early 2027. Despite some headwinds, the Canadian economy demonstrates resilience, with GDP growth rebounding in Q2 2026 and per-capita growth improving significantly when accounting for demographic factors. The unemployment rate reached a two-year low despite trade tensions and rising energy costs.

U.S. tariffs have been largely contained, but they pose ongoing risks as they impact only 5% of Canadian imports, while most exports and imports remain duty-free. Consumer spending remains strong despite higher energy costs, with household savings rates increasing in Q2 due to higher government transfers and the largest wage growth in nearly two years.

The Bank of Canada is projected to remain on hold in 2026, but there is a tilt towards earlier rate hikes due to high energy prices having a minimal impact on broader inflation.