Desjardins Group is less optimistic than many peers about business spending in 2026. While fiscal policy is expected to lay important groundwork for future growth this year, government spending is unlikely to produce meaningful results until 2027. If the Canadian economy is to meet growth expectations in the meantime, consumers will have to do their part.
“Business investment is going to be weak. It’s still likely to be positive, but in terms of its contribution, very modest,” said Randall Bartlett, deputy chief economist at Desjardins Group in an interview last week. “We think household consumption is probably going to be the biggest contributor to growth this year.”
That outlook is supported in part by fiscal policy. Last week, Prime Minister Mark Carney announced a 25% increase to the GST credit, calling it the Canada Groceries and Essentials Benefit. The temporary measure takes effect in July and will last five years. That’s in addition to a 50% bonus this year. The steps are expected to bolster consumption, particularly among lower-income households.
Bartlett is also optimistic about fiscal measures announced in last year’s federal budget. But he said it will take time to roll out.
“We think it’s going to be a bit of a tailwind to growth,” he said. “That’s unavoidable, just given the size of it. We think most of it’s probably going to hit the Canadian economy in 2027 and beyond.”
Still risk-off
Until business leaders have greater clarity on where Canada stands in terms of U.S. trade relations, we’re stuck in a risk-off posture. The Bank of Canada’s most recent Business Outlook Survey found leaders “prioritizing spending on routine maintenance, partly because of continued trade-related uncertainty.”
They’re learning to operate in a post-free-trade world, “though these pressures remain prevalent.”
Investment intentions have improved, “but very modestly and from very low levels,” Bartlett said.
The good news is that 13 months into U.S. President Donald Trump’s second term in office, the uncertain trade environment has hurt Canada less than many had expected. After slipping about 1.6% in the second quarter, GDP rebounded in Q3, avoiding a technical recession. Projections for the fourth quarter aren’t great — we may even see another negative report.
“It’s a volatile environment,” Bartlett said. “But one that hasn’t proven nearly as impactful as many had anticipated.”
Firms forecasting solid business investment may be disappointed with Canada’s contribution this year. In terms of AI spending — believed by some to be a significant driver of growth in 2026 — Bartlett said Canadian spending pales in comparison to that of the U.S., when measured against overall capital investment.
“It’s a challenging time, not just in attracting AI cap-ex, but broader cap-ex to Canada,” Bartlett said.
‘A tough time to be a forecaster’
The range of views among forecasters this year is striking. Some expect a continuation of last year’s strong returns as a result of capital investment — particularly in AI. Others say valuations are unsustainable, and a correction is likely.
Some expect the kind of short-term market volatility that comes with trade policy uncertainty and elevated political risk. Others “think it is a lot of noise,” Bartlett said.
“There is a confluence of forces at play,” he continued. “On the geopolitical side of things, obviously we’re moving to a new regime. That’s clearly what our prime minister believes, and others — this is not a short-term blip. It’s a long-term rupture in the established international order.”
Bartlett likened the current moment to the Covid pandemic and the global financial crisis before it.
We’re at “a bit of an inflection point,” he said. “It’s a tough time to be a forecaster.”
In a separate report released Thursday, Desjardins Group forecast a 12.5% return for the S&P/TSX composite index in 2026 and a 10.5% return from the S&P 500.