Canada: Growth resilience and rate risks – RBC

Royal Bank of Canada (RBC) analysts highlight that Canada’s economy has rebounded, with Gross Domestic Product (GDP) growth improving in Q2 2026 and per-capita gains supported by a lower unemployment rate. They note that U.S. tariffs affect only a small share of trade, while consumer spending is underpinned by stronger labour markets and wage growth. The Bank of Canada is projected to stay on hold through 2026, with potential rate hikes from early 2027.

Resilient growth with policy on hold

"The Canadian economy shows resilience despite headwinds: GDP growth rebounded in Q2 2026, and per-capita growth improved significantly when adjusted for demographic pressures, with the unemployment rate dropping to a two-year low even with elevated trade tensions and rising energy costs."

"Escalation of U.S. tariffs remains contained, but poses ongoing risks: New 50% U.S. tariffs on 5% of Canadian imports will have a significant impact on targeted sectors, but leave most Canadian exports (and imports) crossing the border duty free."

"Consumer spending remains firm as labour markets improve: Household savings rates rose in Q2 despite higher energy costs, supported by higher government transfers, but also the largest wage and salary growth in nearly two years (1.4%)."

"RBC card transactions indicates resilience in consumer spending through summer despite higher energy costs."

"The Bank of Canada expected to remain on hold in 2026, but risks are tilted to earlier hikes: High energy prices have not yet shown significant signs of bleeding through to broader inflation, leaving the central bank with the option to remain patient."