• Scotiabank projects U.S. GDP growth will ease to about 2% in 2026 and 1.9% in 2027.
  • Canadian GDP growth is expected to slow to 0.9% in 2026 before expanding to 2.2% in 2027.
  • The forecast highlights ongoing trade frictions and a soft Canadian start to 2026, with gradual improvement later.

A Cautious Outlook for North America

Scotiabank's latest macroeconomic forecast paints a picture of moderation for the U.S. economy and a soft patch for Canada in the near term. According to the bank's economists, U.S. GDP growth is projected to ease to approximately 2% in 2026 and 1.9% in 2027, reflecting a gradual normalization from earlier stronger expansions. Meanwhile, Canada's growth is expected to slow to 0.9% in 2026, before rebounding to 2.2% in 2027, driven by improved export demand.

The forecast underscores the persistent drag from U.S. trade frictions and policy uncertainty, which have weighed on Canadian exports and investment. "The Canadian economy faces a soft start to 2026, but we see conditions improving as the year progresses," said a Scotiabank economist, speaking on condition of anonymity. The bank's projections align with a two-year recovery path, with early weakness offset by a gradual pick-up in exports and investment.

Trade Frictions and Policy Uncertainty

Trade policy remains a wildcard for both countries. The ongoing uncertainty around US tariffs and the CUSMA renegotiation process has created headwinds for Canadian businesses. "Without a deal on trade, the risk of prolonged weakness remains," noted the economist. The bank's forecasts assume a stabilization in US demand and a gradual resolution of trade tensions.

Global growth, however, is expected to remain steady, supported by AI-related technology investment and resilient consumer spending. Canada, in particular, benefits from a weaker currency, which boosts export competitiveness, although higher oil and commodity costs due to Middle East tensions could offset some gains.

Implications for Investors and Policymakers

For investors, the forecast implies a period of modest growth but with opportunities in export-oriented sectors. "Canada's soft patch early in 2026 could pressure employment and investment decisions," said the economist. "But the mid-to-late 2026-2027 rebound should be driven by stronger US growth and export competitiveness."

Inflation is also expected to ease toward the 2% target by early 2027, providing some comfort to central banks. The Bank of Canada and the IMF have similarly noted that while global growth remains steady, trade policy uncertainty persists.

The report comes as other major banks, including RBC, have flagged Canada's soft patch with expectations of later resilience. Scotiabank's forecast aligns with this view, emphasizing the gradual nature of the recovery.

A Look Ahead

While the near-term outlook is cautious, Scotiabank's projections suggest a brighter 2027, with growth picking up as trade frictions ease and export demand strengthens. The bank's economists remain vigilant, noting that policy developments could alter the trajectory. As always, the forecast is subject to revision based on evolving economic data.

Correction: An earlier version of this article misstated the projected U.S. GDP growth for 2027 as 2.0%; it is 1.9%, according to Scotiabank's latest forecast.