National Bank Trims Canada 2026 GDP Growth Forecast Amid Uncertain Environment

06:30 AM EST, 02/20/2026 (MT Newswires) -- Trade tensions between Canada and the United States have intensified, fueling economic uncertainty at the start of a crucial year for the renewal of the USMCA trade agreement, said National Bank of Canada.

The Canadian manufacturing sector is experiencing its longest recession in at least a generation, with activity at its lowest level since 2013 -- excluding the COVID-19 pandemic -- in stark contrast to the strength seen in the U.S, noted the bank.

This weakness is attributable not only to U.S. protectionism but also to domestic factors, including excessive regulation and ongoing uncertainty surrounding energy taxonomy, which are hampering industrial investment, stated National Bank.

As a consequence, manufacturing employment has contracted sharply since February 2025, making this sector the main source of job losses, although the weakness hasn't spread to the rest of the economy.

Although the labor market has shown remarkable resilience given the current context, it has remained in excess supply since mid-2024, which has allowed annual wage growth to moderate significantly, pointed out the bank. This is helping to ease inflationary pressures, giving the Bank of Canada more room to maneuver in the event of a sharp economic deterioration.

However, this isn't National Bank's base case scenario, as it still anticipates a favorable outcome to the USMCA review.

In this uncertain environment, which could delay the investment rebound the bank had expected, Canadian growth in 2026 has been revised slightly downward to 1.1% from 1.2% previously, against a backdrop of a sharp decline in potential gross domestic product growth linked to demographic recalibration.

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