GDP and GDP per head
Canada is the smallest of the G7 economies in terms of GDP at market exchange rates but third in terms of GDP per head at market rates. Canada avoided the global financial crisis of 2008/9. Mark Carney, Governor of the Bank of Canada at that time and now Prime Minister, must take a lot of the credit. He is a safe pair of hands.
Demographics
In contrast to most other advanced economies Canada’s population is forecast to continue to grow over the next 25 years, with inward migration a major support. This is the main reason why we estimate that Canada’s potential GDP growth rate is as high as 1.9% p.a.
GDP growth
Growth in 2026 is seen as slightly below that potential rate – before returning to potential in 2027. Canada's economy contracted in the first quarter on an annualized basis by a slim margin, marking the second consecutive quarter of such decline — a technical recession. However, as a net energy exporter, Canada will benefit from higher oil prices. Approximately a $10/barrel permanent increase would raise GDP growth in 2026 by around 0.3%, according to Scotiabank.
Inflation
The all-items inflation rate has remained within the 1-3% target range since January 2024. Core inflation has remained marginally above the headline rate. The IMF’s forecast for the average inflation rate in 2026 is for it to remain in the target range.
Emissions
CO2e emissions per head are quite high - similar to the US - and not on track to reach net zero in 2050.
Fiscal Position
Gross government debt, although above 100% of GDP, is expected to fall over the next five years so the debt position looks broadly sustainable.
External Position
The small current account deficit and sizeable net foreign assets make for a strong external position.
Money and Credit
The level of private sector credit is high but has fallen from a peak of 245% of GDP in 2020. Money growth is broadly consistent with inflation objective. The policy rate was cut to 2.25% in October 2025. With regard to the oil shock, Canada is likely to see stronger growth and higher inflation, raising the prospect of the policy rate rising at some stage.
Governance and Competitiveness
Canada scores highly on economic freedom and is a clean country in terms of perceived corruption. Its corruption perception score is 10 points above that of the US.
Currency
The Canadian dollar looks fairly valued against the US dollar, being in line with The Economist’s GDP-adjusted PPP rate.