BMO Says "Meaningful" Economy Rebound in Canada Needs Clarity on CUSMA Trade Review, Business Investment Boost

12:07 PM EDT, 03/19/2026 (MT Newswires) -- The inflationary impact of rising oil prices on Canada is similar to that in the United States and will likely lift the consumer price index from 1.8% year over year in February to an average of 2.9% in 2026, said Bank of Montreal (BMO).

The growth hit is also broadly comparable, noted the bank. While Canada's economy is more exposed to weaker global demand than that of the U.S., it is also more leveraged to higher energy prices.

Goods exports account for nearly a quarter of Canada's gross domestic product, versus 7% in the U.S., while the trade surplus in oil and natural gas products represents 4% of GDP, compared with a negligible 0.1% in the U.S.

BMO lowered its real GDP growth forecast by 0.3 percentage point to 1.0% in 2026, with expansionary fiscal policies providing some offsetting support. Heavy oil producers Alberta and Saskatchewan should lead the country in growth once again this year, while energy-consuming Central Canada will continue to lag amid ongoing trade-policy uncertainty.

Even before the Iran war, Canada's economy was on the defensive, stated the bank. Real GDP contracted slightly in Q4, though wholly due to a sharp drop in inventories. Most sectors expanded at a "healthy" rate, including exports and consumer spending, while governments spent freely on defense and infrastructure.

Even business investment advanced for the first time in a year, led by the biggest increase in spending on computer equipment since 1991. An upturn in advance retail sales in January suggests the economy returned to positive growth in Q1, but only slightly amid declines in exports, wholesale trade, and factory shipments.

Of more concern, employment plunged by 109,000 in the first two months of the year and has barely grown in the past year, added BMO. The current unemployment rate of 6.7% will likely represent the 2026 average, down slightly from last year, largely because immigration curbs are shrinking the labor force.

A more meaningful economic rebound likely awaits some parting of the USMCA clouds and the unleashing of pent-up business investment, according to the bank. This could propel the economy 2.2% in 2027, which would be the best year since 2022 and a step up from the average 1.9% rate of the past three years.

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