A new forecast by Deloitte Canada suggests the country will avoid a technical recession this year as the economy is expected to grow in the third quarter before posting stronger gains in 2026.
Statistics Canada reported last month that real gross domestic product fell 1.6% on an annualized basis in the second quarter as the economy saw a drop in exports and business investment.
However, Deloitte’s fall forecast predicts the Canadian economy will avoid two consecutive quarters of contraction and post annualized growth of 1.2% in the third quarter, followed by 1.5% in this year’s final quarter.
The report says sector-specific tariffs imposed by the U.S. will continue to hurt the country’s manufacturing industries, but it noted that Canada faces low overall average U.S. tariffs compared to other countries, minimizing the economic damage.
Deloitte Canada chief economist Dawn Desjardins also predicts the Bank of Canada will cut its policy interest rate to 2.25% by the end of the year, creating more favourable financing conditions.
Overall, the report expects the Canadian economy to grow 1.3% this year, followed by growth of 1.7% in 2026.