Question Period Note: CANADA ECONOMIC UPDATE – JUNE 2026

• Canada continues to face significant external headwinds from U.S. tariffs, global trade uncertainty, and the conflict in the Middle East.
• Despite these challenges, the Canadian economy continues to adapt and show resilience. Households are spending, businesses are investing, exports are diversifying, and affordability is improving in several key areas.

The economy continues to create opportunities
• The unemployment rate was 6.9 per cent in April, below its recent peak of 7.1 per cent last August and broadly unchanged from a year ago despite significant trade-related uncertainty.
• Since the start of 2025, Canada has created 2.8 jobs per 1,000 people, nearly double the pace in the United States (1.5 per 1,000) and stronger than Germany, Italy, and Japan (Table 1).
• Canada continues to outperform many G7 peers on labour market participation and workforce attachment (Tables 2 and 3).

Business investment is improving
• Business investment increased for a second consecutive quarter in 2026Q1.
o Machinery and equipment investment rose 10.2 per cent (annualized) while investment in intellectual property products (software, research and development, and other intellectual property products) increased 13.8 per cent (annualized).
• Strong investment in machinery and equipment, software, and research and development in Q1 suggests firms remain confident in Canada's future and continue to expand the productive capacity of the economy despite elevated global uncertainty.

Canada continues to attract global investment
• Canada received the highest foreign direct investment (FDI) per capita among G7 economies over the four quarters of 2025 and ranked fourth globally.
o This strong performance represents a continuation of a trend. Over 2023Q1–2025Q4, Canada recorded the highest per capita FDI inflows among G7 economies.
o FDI inflows moderated to $22.0 billion in Q1 2026 from $26.0 billion in Q4 2025 but remained well above historical norms, highlighting continued investor confidence in Canada's economy.
• Global firms continue to choose Canada as a destination for investment in energy, critical minerals, advanced manufacturing, artificial intelligence, and technology.

Export diversification is gaining momentum
• Approximately 85 per cent of Canadian exports to the United States remain protected under CUSMA. Canada remains the only G7 country with comprehensive trade agreements covering all other G7 economies.
• Exports to non-U.S. markets have increased substantially since the onset of tariffs. Recent trade data continue to show evidence of diversification. Exports to non-U.S. destinations are approximately $25 billion higher than pre-tariff levels, while exports to the United States remain approximately $56.5 billion above pre-tariff levels.
• Canadian businesses continue to adapt to a changing global environment by diversifying suppliers, expanding into new markets, and strengthening supply chains. Reflecting this shift, 65 per cent of exporters surveyed by Export Development Canada in March 2026 reported plans to enter new markets over the next two years.

Canada is benefiting from expanded energy exports
• Energy export volumes increased roughly 20 per cent in the first quarter and now stand about 10 per cent above 2024 levels.
• The Trans Mountain Expansion and LNG Canada are opening new export opportunities and reducing reliance on a single market.
• As a net energy exporter, Canada is better positioned than many advanced economies to benefit from stronger global energy demand and improved terms of trade.

Households remain resilient
• Household spending increased 1.5 per cent in Q1 (annualized) and 2.5 per cent per capita, despite elevated uncertainty from tariffs, trade tensions, and events in the Middle East.
• Canadians are continuing to spend, but are adjusting how they spend. Services consumption remains strong (2.0 per cent in Q1), discretionary spending continues to expand, and goods spending rebounded in early 2026.
• Household disposable income increased 2.3 per cent in Q1 (annualized).
• Household balance sheets remain resilient. Debt-to-income ratios remain below pre-pandemic levels, household net worth remains near record highs, and savings rates remain above historical norms. These financial buffers have helped support spending through a period of elevated uncertainty.

Inflation remains under control
• Inflation has remained within the Bank of Canada's 1–3 per cent target range for 28 consecutive months, providing an extended period of price stability following the global inflation surge.
• Headline inflation was 2.8 per cent in April, largely reflecting higher gasoline prices following the conflict in the Middle East.
• Energy prices accounted for most of the increase in inflation. Excluding energy, inflation eased from 2.3 per cent in March to 1.8 per cent in April, while the Bank of Canada's preferred core measures eased to 2.1 per cent.
• While higher oil prices are expected to temporarily push inflation above 3 per cent in coming months, current inflation pressures remain concentrated in energy-related components rather than broad-based across the economy.
• Canada continues to rank near the middle of the G7 on inflation.

Affordability is improving
• Canadians are seeing gains in purchasing power. Real wages have grown faster than inflation for more than three consecutive years and were up approximately 1.7 per cent in April, well above the pre-pandemic average of 0.7 per cent.
• Housing affordability has improved significantly. Average home prices have fallen from more than $825,000 in early 2022 to under $660,000 today, while the share of disposable income needed for housing costs has fallen from 54.5 per cent in mid-2023 to 42.7 per cent in late 2025.
• National asking rents are nearly 9 per cent below their 2024 peak and have declined for 19 consecutive months.
• Government actions are helping reduce key household costs. Child care costs are down 30 per cent since 2019, while cellular service prices are down 54 per cent.
• Food inflation has eased to its lowest rate in six months, although grocery prices remain elevated due largely to global factors including energy, transportation, fertilizer, and weather-related costs.
• Higher gasoline prices following the conflict in the Middle East are creating new affordability pressures. The temporary suspension of the federal fuel excise tax is helping offset part of those increases for households and businesses.

Growth is expected to strengthen
• Despite significant shocks from tariffs, trade uncertainty, and higher energy prices, the Canadian economy has remained resilient. Household spending continues to grow, business investment is recovering, exports are diversifying toward non-U.S. markets, and new energy export infrastructure is expanding Canada's access to global markets.
• While headline GDP declined 0.1 per cent in Q1, private domestic demand continued to grow (+0.3 per cent annualized) and GDP per capita increased (+0.9 per cent annualized).
• Statistics Canada's preliminary estimate points to 0.4 per cent GDP growth in April, indicating the economy returned to growth at the start of the second quarter.
• Private-sector forecasters expect growth to strengthen through 2026 and 2027, while the IMF projects Canada will be the second-fastest growing economy in the G7 over that period.
• The OECD will release updated economic projections on June 3.

Canada maintains the strongest fiscal position in the G7
• The IMF continues to rank Canada as having the strongest fiscal position in the G7.
• Canada has by far the lowest net debt burden in the G7 and is projected to maintain one of the smallest deficits among advanced economies.
• This strong fiscal foundation allows Canada to invest in housing, infrastructure, productivity, competitiveness, and affordability while maintaining fiscal responsibility.

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