Structural Challenges Set to Slow Canada’s Long-Term Growth

• Given the structural challenges facing the Canadian economy, BMI anticipates that Gross Domestic Product (GDP) will slow over the next decade to an average of 1.9% compared with 2.3% over 2010-2019. Easing trade uncertainty over the long term will support business investment and domestic demand, underpinned by shifts in government policy aimed at reducing the Canadian economy’s reliance on the United States (U.S.) market.
• Infrastructure upgrades announced as part of Budget 2025 should help to facilitate greater internal and cross-border trade by making it easier to bring goods to market. These upgrades are likely to do more for external trade than Prime Minister Mark Carney’s efforts to sign trade agreements with a variety of alternative partners. In contrast, proposed changes to interprovincial trade regulations are a more meaningful potential tailwind for domestic activity, with the International Monetary Fund (IMF) estimating that current barriers are the equivalent of a 9% national tariff, costing the Canadian economy C$210Bn per year, or around 7% of GDP.
• Despite these positives, Canada faces several structural headwinds that dampen its longer-term growth outlook. Canada faces demographic challenges, as the proportion of people aged 65 and over rose from 12.6% in 2000 to 19.5% in 2025, with the dependency ratio increasing by 6.2 percentage points (pp) since 2000 to 52.7 in 2025. Furthermore, a more restrictive immigration policy is also contributing to a less favourable future demographic profile.
• The government has moved to reduce immigration to 'sustainable levels' with non‑permanent residents falling from 7.6% of the population in October 2024 to 6.8% in October 2025, with new restrictive immigration targets for temporary residents, as outlined in Budget 2025. Canada's population fell in the fourth quarter of 2025 (Q4 2025) by 0.2%, the only recorded quarterly population decline since 1946 (excluding Q4 2020), largely due to these policy changes. Moreover, productivity growth continues to disappoint. Between Q1 2023 and Q4 2025, US quarterly labour productivity growth averaged 2.5% y-o-y, compared to Canada’s nearly flat productivity growth, which averaged 0.12% over the same period. 
• That said, risks to the outlook are balanced. If the many economic policies being proposed and implemented by the current government result in a greater-than-expected boost in productivity, growth could exceed our expectations. Securing more favourable terms in current trade talks and in the 2026 United States-Mexico-Canada Agreement (USMCA) renegotiation would boost growth further. On the downside, if looser fiscal policy fuels higher inflation, monetary policy may need to turn more restrictive, creating a headwind to investment and longer‑term growth in 2026 and beyond. Furthermore, escalating global geopolitical tensions present downside risks to Canadian – and global – economic health.

(Source: BMI, A Fitch Solutions Company)