Canada's 2026 Outlook: Navigating Rate Divergence and AI's Rise

TORONTO, ON – November 25, 2025 – As Canadians look toward 2026, a year anticipated to be fraught with economic uncertainty, one of the country's leading investment managers is advising a strategy of resilience, diversification, and a focus on fundamentals. Mackenzie Investments today released its 2026 Market Outlook, a detailed forecast that paints a picture of a global economy at a crossroads, with significant implications for Canadian households, industries, and policymakers.

Following a tumultuous year defined by geopolitical tensions, trade negotiations, and volatile market swings, the firm anticipates that investor resolve will continue to be tested. The report suggests that while challenges are abundant, they are matched by opportunities for those who can navigate the complex interplay of central bank policies, technological disruption, and shifting commodity demands.

"Investors demonstrated resilience during a year dominated by relentless headlines about tariffs, central bank policy, immigration and geopolitics," noted Steve Locke, Chief Investment Officer for Fixed Income and Multi-Asset Strategies at Mackenzie Investments. "As we look to 2026, we believe there will continue to be challenges – but also opportunities for investors who stay disciplined, prioritize quality and take a strategic approach to portfolio construction."

The Great Rate Divide: Ottawa and Washington on Different Paths

A central theme of the 2026 outlook is the growing divergence in monetary policy between the Bank of Canada and the U.S. Federal Reserve. This split path will have direct consequences for Canadians, particularly the millions of homeowners facing mortgage renewals in a high-interest rate environment.

Mackenzie's analysis suggests the U.S. Federal Reserve may deliver fewer interest rate cuts than markets are currently pricing in. This expectation is anchored by persistent core inflation hovering near 3% and significant fiscal stimulus from legislation like the One Big Beautiful Bill Act, which is projected to add approximately half a percentage point to U.S. GDP. This stimulus supports robust consumer spending and business investment, giving the Fed less room to ease its policy.

In stark contrast, the situation north of the border calls for a different approach. The outlook predicts modest easing from the Bank of Canada, a direct response to the mounting pressure on Canadian households. As mortgages taken out during the pandemic's low-rate era come up for renewal, higher financing costs are expected to significantly strain household budgets and temper economic growth. This necessity for rate relief in Canada, even as the U.S. holds firm, highlights the unique vulnerabilities within the Canadian economy. However, the path for the Bank of Canada remains a subject of intense debate among economists. While Mackenzie anticipates modest cuts, other major financial institutions present a varied picture. RBC Capital Markets, for instance, expects the policy rate to hold at 2.25% through 2026, while TD Economics forecasts that rate will remain in place until at least 2030. This lack of consensus underscores the uncertainty facing Canadian borrowers and policymakers alike, as they navigate the delicate balance between curbing inflation and avoiding a severe economic downturn.

Equities Grounded by AI and Innovation

Despite concerns about stretched valuations in some market corners and the potential for volatility, Mackenzie maintains a constructive view on equities for the year ahead. This optimism is not based on speculative fervor but on strong underlying fundamentals that are reshaping the economic landscape.

"Equities remain a compelling asset class for long-term investors," said Lesley Marks, Chief Investment Officer for Equities at Mackenzie. "While we expect some volatility, the underlying drivers of earnings growth, from fiscal stimulus to technological innovation, provide a strong foundation for equity markets. The key is to stay disciplined and diversify beyond the familiar names."

The report identifies several key drivers supporting this resilience. Beyond the previously mentioned fiscal tailwinds, a global capital spending cycle and, most significantly, widespread productivity gains from the adoption of artificial intelligence (AI) are expected to bolster corporate earnings and profit margins. Research supports this view, with some studies estimating that generative AI could raise labour productivity by as much as 15% upon full adoption. Early adopters across various sectors are already reporting significant efficiency gains, suggesting that the AI-driven productivity boom is moving from a theoretical concept to a tangible economic force.

This technological wave is creating a durable foundation for growth, even as central banks remain cautious. The investment in AI infrastructure, from software to the massive data centers required to power it, is becoming a significant component of capital expenditure, fueling a new cycle of economic activity.

Commodities for a New Era: Beyond Gold to Green Tech

The final pillar of Mackenzie's 2026 strategy involves a renewed focus on commodities, not just as a traditional inflation hedge but as a critical component of a diversified, forward-looking portfolio. While gold remains an attractive asset, the outlook highlights surging demand for a different class of materials essential to the twin engines of technological innovation and global electrification.

The build-out of AI infrastructure is not only a story of software and silicon chips; it requires vast amounts of energy and materials. The expansion of data centers is driving demand for electricity, and in turn, for the commodities needed to generate and transmit it. This trend is amplified by global public policy pushing for decarbonization.

Electrification initiatives, from electric vehicles to renewable energy projects like wind and solar farms, are creating powerful, long-term demand for industrial metals. The report specifically points to steel, copper, uranium, and rare earth elements as beneficiaries of this structural shift. Copper, a vital component in everything from EVs to power grids, is seeing demand projections soar. Steel is fundamental to wind turbines and other infrastructure, while uranium is gaining renewed attention as a source of clean, baseload power. This shift redefines the role of commodities in an investment strategy, tying them directly to the most significant technological and policy trends shaping the 21st-century economy and presenting a strategic opportunity for investors positioned to look beyond short-term market noise.