Canada's economy entered 2026 on surprisingly firm footing. But elevated oil prices, mounting trade uncertainty and a slumping Quebec labour market are now darkening the horizon. Mortgage professionals will feel the effects on their clients' borrowing decisions before the summer is out.
That is the central message of Desjardins Group's latest economic outlook, which keeps the Bank of Canada on hold while warning that the path ahead is considerably more fraught than it appeared at the start of the year.
The report, which covers both the Canadian and global economy, captures a moment of fragile resilience that belies a string of accumulating risks.
Oil shock offers a mixed blessing for Canada
The persistence of conflict in Iran, which has spread throughout the Persian Gulf region according to the Desjardins report, has kept crude oil prices hovering around US$100 per barrel and is expected to hold them elevated over the coming months.
For Canada, a net energy exporter, this dynamic cuts both ways.
On the positive side, Desjardins expects elevated oil prices to lift business investment and net exports, particularly in the energy sector, providing a modest boost to federal revenues and supporting activity in Alberta and other resource-heavy provinces.
Added to that, fiscal measures including a temporary fuel tax cut and the expansion of the Goods and Services Tax (GST)/ Harmonized Sales Tax (HST) credit — scheduled to roll out on June 5, 2026 — are expected to cushion the blow to household consumption from higher energy prices, according to the report.But the same oil shock is feeding inflationary pressure that complicates the Bank of Canada's ability to act. The Bank of Canada is likely finished moving rates for the rest of 2026, according to Dr. Sherry Cooper, chief economist at Dominion Lending Centres Group (DLCG).
She argued that April's consumer price index jump was essentially conflict-driven noise the central bank can look through.
Desjardins reaches a similar conclusion, noting in its May 2026 report that the upcoming Canada–United States–Mexico Agreement (CUSMA) joint review represents a notable headwind that should keep the Bank on hold in the near term.
On April 29, 2026, the Bank of Canada confirmed it is holding its overnight rate at 2.25%, with the next rate decision scheduled for June 10, 2026.
Quebec's labour market raises regional red flags
While the national outlook is cautious, Desjardins' May 2026 report singles out Quebec as a province facing distinct and compounding pressures.
The firm cut its 2026 real GDP growth forecast for Quebec from 0.8% to 0.6%, citing a run of softer data over the past month.
Quebec's labour market is, by Desjardins' account, in a slump. April's employment figures showed the province recorded the steepest employment decline in the country, with full-time jobs posting the greatest losses.
Quebec accounted for a drop of 43,000 jobs last month. That's nearly the entire national decline, with that province also bearing most of the cumulative loss of 112,000 positions recorded across Canada this year.
This compounds a slowdown that was already evident before the Middle East conflict began, with real GDP in January sitting 0.7% lower than it was 12 months earlier.
CUSMA review looms as the summer's defining risk
Desjardins frames the CUSMA joint review as among the most significant economic events of the year, and one that has a direct bearing on the Bank of Canada's rate path.
The review introduces the kind of structural uncertainty — across industries from energy and agriculture to manufacturing — that tends to delay both business investment and household borrowing decisions.
Desjardins, for its part, anticipated a longer-than-consensus period of high oil prices and, as a result, says its outlook for the Bank of Canada and the US Federal Reserve remains largely unchanged from earlier in the year.
CMP
No comments:
Post a Comment