RBC Is "Cautiously" Optimistic Over Canada's Economic Outlook in 2026

11:56 AM EST, 01/08/2026 (MT Newswires) -- There were further signs of stabilization in Canadian international trade flows in October, with the goods trade balance little changed in the month, edging down to a "small" $600 million deficit from the $0.2 million surplus in September, said RBC.

Pockets of Canadian international trade continue to be significantly impacted by U.S. tariffs, noted the bank after Thursday's release of the October international merchandise trade data. The trade deficit would have been about $139 million wider in October without a surge in medium and heavy vehicle truck exports ahead of new U.S. tariffs in November. Steel product exports were down 44% from a year ago.

But broader trade flows continue to show signs of stabilization, stated RBC. Controlling for changes in prices, net trade to date is tracking another sizable positive contribution to Q4 gross domestic product growth to build on the 3.1 percentage points (annualized) add in Q3 and further retrace the record 8.9 percentage point subtraction in Q2 after the initial wave of U.S. tariffs imposed last year.

And higher imports are a positive indicator for domestic demand -- jumps in imports of electronics and industrial equipment in October are a positive indicator of near-term consumer and business spending, pointed out the bank.

Uncertainty about Canada's future trade relationship with the United States remains, slower population growth will weigh on aggregate output, and weak productivity growth persists as a structural challenge. But most exports (87%) continued to cross the border duty-free to the U.S. in October.

Absent another external shock, RBC remains "cautiously" optimistic about the Canadian economic outlook in the year ahead and doesn't expect the Bank of Canada will need to lower interest rates further.

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