Provincial Economic Outlook

Highlights

• Despite significant headwinds in 2025, provincial economies proved more resilient than anticipated even a few months ago. Some of this resulted from historical economic data that were revised materially higher, thereby supporting a stronger starting point for the outlook. Employment gained ground in most provinces last year in spite of the US trade war and a now shrinking population, supporting only a modest uptick in unemployment rates across the board. And while Canadian inflation remained close to the Bank of Canada’s 2% target for the year, provincial outcomes varied widely, in part due to meaningful differences in rent inflation.
• Looking to 2026, Canada’s provinces continue to face similar headwinds that popped up in 2025, but also new obstacles that weren’t anticipated when we published our prior projection. US trade and tariff policy continues to hurt exporters, particularly in the most exposed provinces (Ontario, Quebec and British Columbia) and sectors (steel, aluminum, auto manufacturing and wood products). The joint review of the Canada–United States–Mexico Agreement (CUSMA) is almost certain to compound this uncertainty. The regime shift in Venezuela has increased concern around the heavy oil price paid to Canadian producers, with risks weighing on output and profits. Canada’s declining population is also likely to hold back growth, albeit modestly and with the benefit of improving productivity and housing affordability.
• For provincial government finances, oil producers are likely to see the biggest change in fortunes relative to the fall fiscal update season. That said, Alberta and Saskatchewan were already best in class in terms of debt metrics, and so should be able to weather the storm better than others. Indeed, most provinces downgraded their deficit outlook as the 2025–26 fiscal year progressed. One clear exception was Ontario, which has outperformed expectations economically and fiscally. Quebec also saw an improvement in its public finances over the year, albeit a much more modest one.