As the economy continues to shake off trade-related disruptions, Canada’s GDP growth is expected to gradually gain momentum over the next couple of years, according to the latest forecast from the Organization for Economic Cooperation and Development (OECD).
In a report spelling out its latest forecast, the Paris-based group said it expects economic growth to strengthen in 2026 and 2027, as it continues to recover from the slowdown inflicted this year by higher U.S. tariffs — with growth forecast to reach 1.3% next year, and 1.7% in the year after that.
“A rebound in trade is expected to support a gradual pickup in business investment, while household consumption picks up as uncertainty fades,” the OECD said.
Additionally, residential investment is “set to gather momentum in 2026, supported by housing support measures and lower lending rates,” it noted.
And it expects the labour market to improve gradually in 2026 and 2027.
While headline inflation is expected to see a “temporary uptick” in 2026, “core inflation is projected to continue moderating, reflecting lower wage growth and a widening output gap,” the report said — adding that headline inflation is seen remaining around the Bank of Canada’s 2% target over the next couple of years.
Following the latest round of interest rate cuts in September and October, monetary policy is expected to remain unchanged, the OECD said.
“The pass- through from lower policy rates to bank lending rates has advanced, and its effects on the real economy are expected to become more visible in 2026, as uncertainty diminishes,” it said.
At the same time, fiscal policy has become more accommodative, the report said, with sectors hit hard by higher tariffs receiving targeted support, along with broader tax cuts, and increased defence and infrastructure spending.
The OECD said the risks to its outlook are “broadly balanced.”
While a resurgence in trade uncertainty could delay the recovery, particularly if it spills over to the labour markets and weighs on household income and domestic demand, there are also upside risks, it said, as “household consumption and residential investment could outperform expectations, particularly if households draw more heavily on accumulated savings.”
Regardless, government policy should focus on rejuvenating productivity growth, the report said.
“This entails promoting investment in productive assets, particularly digital technologies, and strengthening innovation,” it said, adding that work to dismantle internal trade barriers and to improve labour mobility should also continue.
“Existing R&D tax incentives could be streamlined … and complemented by more direct support,” it said. “Expanding the supply of housing, especially affordable rental housing, also remains a priority.”