In its 2026 economic outlook, Bennett Jones LLP emphasized that the federal government should focus on priorities relating to energy, natural resources, infrastructure, manufacturing, artificial intelligence (AI), technology, and the defence industrial base.
Looking back over the past year, the firm noted the resilient economies, the broadly accommodative global financial conditions, the buoyant equity markets, and the generally stable debt markets, despite disruptive US policies and fears of recession in the US and a worldwide trade war.
Looking ahead, Bennett Jones highlighted the following new realities for 2026:
- the world’s reluctant acceptance that the US will maintain import tariffs
- the potential bursting of the AI bubble
- the North Atlantic Treaty Organization (NATO) members’ new commitment to allocate five percent of their gross domestic products (GDPs) to defence-related spending by 2035
The firm said the following complicating factors require attention across all economies:
- the nexus between national and economic security
- structural rigidities interfering with productivity growth
- demographics and immigration
- energy security and climate change
- affordability and the trade-off between present consumption and future investment
Short-term prospects
The firm’s outlook acknowledged the slowing of the US and Canadian economies in 2025, explaining:
- In the US, household consumption decelerated, imports dropped in the second quarter, and government consumption fell, partly offset by AI-driven business investment growth
- In Canada, household consumption and government consumption also slowed down, primarily due to the decline in exports in the second quarter, and investments fell due to tariffs and uncertainty
Bennett Jones was optimistic that both economies may regain strength next year. According to its forecast, in the US:
- Real GDP growth will accelerate from 1.7 percent in 2025 to 1.9 percent in 2026 and 2.1 percent in 2027
- Core inflation will be just above two percent by the close of 2027
- Regarding the Federal Reserve, the policy interest rate will be at 3.25 percent (upper limit) in the second half of 2026 through 2027
Per the firm’s outlook, in Canada:
- Real GDP growth will expand from just 0.6 percent in 2025 to 1.6 percent in 2026 and 1.5 percent in 2027
- Consumer price index inflation will be close to the two percent target over the planning horizon
- Regarding the Bank of Canada, the policy interest rate will decline from 2.25 percent in 2025 to two percent in 2026
Growth priorities
The firm’s outlook focused on four priorities for economic growth in Canada. Specifically, it urged Canada to:
- Realize the value of its energy and natural resources and build its infrastructure to bring products to new markets
- Facilitate and accelerate the adjustment of its manufacturing sector
- Seize AI and technology opportunities to accelerate productivity growth and establish a distinct Canadian advantage
- Build a competitive defence industrial base to capitalize on the country’s and its allies’ increasing defence spending
To achieve these priorities, the outlook emphasized the need for sound market fundamentals, policy leadership from governments, and strong private sector engagement. Bennett Jones explained that smart policy may entail public investment aimed at catalyzing private investment, as well as temporary government measures to help an industry and its workers adapt to external shocks.
Canada’s efforts
The firm’s outlook acknowledged positive early steps by the federal government, including its passage of the Building Canada Act, which launched the Major Projects Office, and the signing of a memorandum of understanding to advance private sector energy investments.
The outlook identified the following key factors of success to ensure that the building of projects will proceed:
- the economic case for the projects and the commitment of project proponents
- policy clarity, including in relation to carbon regulation and pricing
- intergovernmental strategic and operational collaboration at every stage
- the alignment between public and private decision-making processes and timelines
- fair and efficient risk management and sharing
- Indigenous peoples’ consent and participation
- cultural change and delivery capacity across the regulatory system
Regarding the federal budget, the outlook welcomed the policy shift in favour of public and private investment to overcome Canada’s structural challenges.
However, the firm stated that the proposed fiscal anchors – more discretionary spending, increased deficits, and a higher debt-to-GDP ratio – might not be enough to ensure the policy choices needed for prudence and sustainability.