Desjardins Sees "The Good, The Bad and The Ugly" in Canada's Provincial Economic Outlook

09:29 AM EDT, 10/15/2025 (MT Newswires) -- It's been a tough year for Canada and its provinces, said Desjardins.

However, despite the economic volatility and uncertainty, the bank raised its 2025 and 2026 outlooks for real gross domestic prodcut growth nationally and in central Canada, specifically Ontario and Manitoba.

The bank sees Canada's GDP growth at 1.2% this year and at 1.5% in 2026. GDP expanded by 1.6% last year.

While Desjardins has lowered its 2025 growth projection for energy-producing provinces -- namely Alberta and Saskatchewan -- compared with its June forecast, the bank now expects all but one province to experience higher real GDP growth next year.

A better growth forecast is just part of the "good" news, added the bank. It stems from the lower effective tariff rate on United States imports from Canada than previously projected, paired with an improved U.S. economic outlook.

The elimination of counter tariffs on many imports from the U.S. will also help support growth by bringing down prices and providing relief to households and businesses, pointed out Desjardins. A broad reduction in internal trade barriers won't hurt either.

The resulting lower interest rates will be a tailwind to economic activity too.

Now for the "bad" news. Despite falling import tariffs and interest rates, the Canadian housing market is on life support, particularly in the most unaffordable provinces -- Ontario and British Columbia, according to the bank. In these regions, mortgage arrears are rising rapidly and condo presales are in the dumps.

At the same time, market rents are falling fast while rental supply is accelerating. This can in part be linked back to the abrupt reversal in non-permanent resident admissions, a phenomenon which is expected to continue -- and possibly accelerate -- into 2026.

That just leaves the "ugly," which speaks more to the risks around the outlook than to the immediate reality. Going into the 2026 renewal of CUSMA, there remains a material downside risk that the U.S. administration could ratchet up tariffs on Canadian exports again, in a repeat of 2025. The administration has taken this approach recently with cabinets and furniture.

However, provincial governments took precautions for this possibility by being prudent in their budget planning and preparing measures to contend with trade shocks, making them well-positioned to weather the storm, said Desjardins.

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