Over the past year, the Canadian economy has been gripped by the headwinds flowing from uncertain trade policy, a slumping housing market and reduced immigration. Now, as the disparate effects of higher tariffs take deeper hold, the fortunes of provincial economies are increasingly diverging too, BMO Capital Markets says.
In a new report, the firm’s economists noted that, while it sees overall GDP growth slowing this year — it’s forecasting 1.3% growth this year, down from 1.7% last year — provincial economic performance is expected to vary.
“After a period where most provinces were riding similar economic waves, there are signs now that regional variation is returning — and that’s more of the norm for Canada,” it said.
Indeed, while the firm is expecting most provinces to face slower growth in 2026, the regions that are most exposed to U.S. tariffs “are now clearly struggling the most,” it said, adding, “that should continue to widen the regional disparity.”
While Alberta is expected to lead the way with 2.3% growth forecast this year on the strength of its energy sector, which faces modest tariffs, and strong demographics — hard-hit Quebec is seen recording just 0.9% growth, with Ontario not much better at 1.2%.
“These provinces carry high exposure to U.S. exports across a range of diverse manufacturing industries, autos and steel & aluminum. Southern Ontario also continues to grind through a housing correction, which lower mortgage rates have yet to relieve,” it said.
British Columbia’s economy is “relatively sheltered, carrying the lowest U.S. export exposure in Canada, but sectoral tariffs on lumber hurt, real estate is struggling, and population growth has slowed sharply,” the report noted.
The picture for Atlantic Canada remains mixed, BMO said, with growth expected to fall in the 1-to-1.5% range in 2026 across the region.