UBS Lowers Its Canada GDP Growth Forecast for This Year

10:24 AM EDT, 06/03/2026 (MT Newswires) -- Canada's Q1 gross domestic product weakness prompts UBS to lower its 2026 growth forecast to 1.0%, although the headline technical recession overstates the degree of underlying softness given volatile trade and inventory swings.

While the picture isn't all negative, the bank has lowered its forecast for real GDP growth in 2026. The main reason is the 0.2% contraction in Q1, which was much weaker than the 1.5% pace UBS had expected.

The bank has also updated its view on the United States-Canada-Mexico Agreement (USMCA or CUSMA) joint review due to begin on July 1. The lack of engagement between Canada and the U.S., together with steps by the Canadian government to deepen trade links elsewhere, now points to a more protracted negotiation.

A quick resolution, potentially by year-end, looks unlikely at this stage, stated UBS. Talks between the U.S. and Canada are effectively stalled, while a new round of US-Mexico discussions is about to begin. One possible sign of faster progress would be Canada returning to the table more seriously.

Given the breadth and complexity of the issues involved, talks extending into 2027 or beyond wouldn't be unusual, nor would it necessarily be a cause for concern, pointed out the bank. If negotiations continue and make progress, markets and investors could read that positively.

By contrast, annual reviews in which the three parties only make marginal changes without committing to a new 16-year agreement would raise the risk of the deal expiring without renewal in 2036. This would be a much less constructive outcome and would probably weigh more heavily on investment and consumer confidence, added UBS.

It may not always be easy to distinguish clearly between these paths, but as long as the US remains engaged at the negotiating table, the bank thinks the chances of a new 16-year agreement being reached remain "high."

UBS still expects a deal to be reached and, in 2027, a faster and broader-based recovery in growth. It forecasts annual growth of 1.9%, supported by stronger business fixed investment alongside resilient consumer demand.

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