Canada: Growth returns with domestic support – RBC

§ 01 Executive Snapshot

• What: Canada’s GDP is projected to rebound in Q1 2026 after a contraction in Q4 2025.
• Who: Economists Nathan Janzen and Claire Fan from the Royal Bank of Canada (RBC).
• Why it matters: The rebound signals improving domestic economic conditions and consumer confidence, which are critical for future growth.

§ 02 Key Developments

• GDP is expected to grow by an annualized rate of 1.7% in Q1 2026 following a 0.6% decline in Q4 2025.
• Domestic demand has improved with increased spending from governments, consumers, and businesses, offsetting inventory usage.
• A decline in residential investment continues, with home resales dropping but household and government spending on the rise.

§ 03 Strategic Context

• The projected growth follows three years of declining per capita economic conditions in Canada, indicating a potential shift towards recovery.
• The economic performance is influenced by external factors such as oil prices and potential tariffs from the U.S., which could impact growth.

§ 04 Strategic Implications

• Immediate implications include a positive outlook for domestic businesses and potential increases in consumer spending, fostering further growth.
• Long-term implications suggest a gradual recovery in per capita economic conditions, essential for sustainable growth in the Canadian economy.

§ 05 Risks & Constraints

• Potential risks include fluctuations in oil prices that could negatively impact economic stability.
• The threat of new U.S. tariffs could create additional uncertainty for Canadian exports, affecting overall growth.

§ 06 Watchlist / Forward Signals

• Key future signals will include actual GDP data for Q1 2026 and subsequent quarters to confirm the growth trajectory.
• Monitoring residential investment trends and consumer spending patterns will be crucial for assessing ongoing economic health.