Middle East Conflict Squeezes Canada's Economy: Modest Growth…

Event summary

Canada's real GDP forecast at 1.0% in 2026 and 2.3% in 2027 due to Middle East conflict-driven disruptions.
Strait of Hormuz closure disrupting global energy supply, fertilizers, metals, and industrial materials.
Canadian labour market shed 109,000 jobs in January and February 2026; weak job creation expected through the year.
U.S. economy projected to expand by 2.0% in 2026 and 2.1% in 2027 amid trade uncertainty and elevated oil prices.
Canada's population to decrease by 0.4% in 2026 and 0.1% in 2027 due to reduced non-permanent residents.

The big picture

Canada's economy faces a delicate balance between inflationary pressures from global energy disruptions and potential benefits for resource producers. The conflict in the Middle East exacerbates existing trade uncertainties, particularly with the U.S., while demographic shifts and weak labour market conditions add further strain. Business investment shows early signs of recovery, but broader economic momentum remains sluggish until stability improves.

What we're watching

Geopolitical Risk: How prolonged Middle East conflict will affect global energy supply and commodity flows through key chokepoints like the Strait of Hormuz.
Trade Dynamics: Whether renegotiation of the Canada-U.S.-Mexico Agreement can mitigate trade disruptions and support export recovery in 2027.
Demographic Impact: The pace at which reduced non-permanent resident intake will affect Canada's labour market and economic growth.