Oxford Economics expects Canada to stay on the sting of recession via 2026, warning that broad-based weak spot throughout the financial system exhibits little signal of easing.
The outlook was shared throughout the agency’s September Workplace Hours name, the place economists pointed to persistent sluggishness throughout key sectors regardless of cooling inflation and up to date price cuts from the Financial institution of Canada.
Ongoing uncertainty round commerce, a softening labour market and a housing market nonetheless trying to find the underside had been flagged as key dangers, with the trail forward additionally weak to coverage shocks such because the federal funds this fall.
Weak progress and a softening job market
Oxford Economics mentioned the financial system will “stay on the verge via the second half of 2025, teetering on recession,” with the Financial institution of Canada’s current reduce described as according to easing inflationary dangers and faltering progress. One other discount in October was famous as doable, although the outlook “remains to be topic to coverage shocks,” together with a fiscal enhance anticipated within the federal funds this fall.
The agency now expects inflation to common 2.6% subsequent 12 months, down from earlier projections of three%, whereas the labour market will proceed to really feel the pressure. “We predict there’s nonetheless a little bit little bit of a success coming to elevate unemployment to 7.4%,” the decision famous, although the speed ought to fall comparatively shortly into 2026 as inhabitants progress slows.
The outlook pointed to a chronic weak progress cycle. “Our outlook for the Canadian financial system just isn’t that optimistic — we anticipate to stay on the sting of recession into 2026, with total progress near zero,” Oxford mentioned. Quarter-by-quarter positive aspects are anticipated to come back slowly, within the vary of only one to 3 tenths of a %.
Uncertainty over tariffs beneath USMCA was additionally cited as a threat. Till Canada secures a deal just like these achieved by the UK or EU, the agency famous a cloud of uncertainty is anticipated to hold over tariff charges, dampening funding and associated sectors.
Tentative housing rebound overshadowed by falling costs
Oxford Economics pointed to early indicators of enchancment in resale exercise, noting “a pickup in gross sales and common costs in Toronto and Vancouver, and listings have additionally risen, so total exercise is beginning to transfer a little bit bit.” Nevertheless, benchmark costs — described because the stronger gauge — “have continued to float decrease.”
Additional price reduction is anticipated to convey extra consumers and sellers again into the market this fall, although the stability is more likely to tilt towards a purchaser’s market. “There will likely be a pickup in exercise, however it would result in costs drifting decrease into 2026,” Oxford mentioned.
Modest value progress may resume by 2027, however structural headwinds are anticipated to restrict the upside. “Demographic shifts will restrict total housing demand, alongside ongoing affordability challenges, particularly within the Higher Toronto and Higher Vancouver areas,” Oxford famous.
Over the long run, residence costs are anticipated to rise solely barely sooner than inflation. “We anticipate a housing market rebalance within the late 2030s, however over the subsequent 5 to 10 years home costs will likely be largely flat in actual phrases,” the agency mentioned.
Authorities ambitions tempered by structural limits
On the development facet, Oxford Economics is projecting restricted momentum within the close to time period. “The following couple of months and quarters are usually not wanting significantly good,” the agency famous, with a relative uptick anticipated solely by late 2026. Even then, the baseline is described as low, and any rebound would resemble a return to stability relatively than a increase.
Authorities ambitions add one other layer of complexity, with Ottawa’s lately introduced Construct Canada Properties program calling for a close to doubling of housing output via modular and mass-timber building. However Oxford warned such targets threat overshooting. “We predict the federal government’s plan to double housing provide overdoes it. We see housing begins peaking close to the 300,000-unit vary within the latter half of the last decade. With altering components together with ageing boomers promoting properties, for instance, we may face an oversupply state of affairs by the tip of the last decade if that authorities plan comes true.”
For now, the Canadian financial system seems set to stay in a holding sample — not absolutely in contraction, however nonetheless removed from a transparent path to restoration. With tariffs in flux, inflation anticipated to tick barely larger in the long run, and housing nonetheless adjusting, the market is formed extra by uncertainty than conviction.
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Final modified: September 22, 2025