Canada faces a sharper economic downturn than most countries as trade tensions with the United States weigh on growth prospects, while the global economy braces for its weakest performance since the pandemic recovery, according to new projections from the Organization for Economic Co-operation and Development.
The OECD’s latest Economic Outlook projects global growth slowing from 3.3% in 2024 to 2.9% in both 2025 and 2026, with substantial trade barriers, tighter financial conditions and heightened policy uncertainty creating headwinds for businesses and consumers worldwide.
Canada’s economy is expected to bear a heavier impact, with GDP growth declining from 1.5% in 2024 to just 1.0% in 2025 and 1.1% in 2026. The United States, Canada’s largest trading partner, faces an even steeper slowdown with growth projected to fall from 2.8% in 2024 to 1.6% in 2025 and 1.5% in 2026.
“The global economy has shifted from a period of resilient growth and declining inflation to a more uncertain path,” said OECD Secretary-General Mathias Cormann. “Our latest economic outlook shows that today’s policy uncertainty is weakening trade and investment, diminishing consumer and business confidence and curbing growth prospects.”
Trade tensions drive economic headwinds
The slowdown stems largely from new trade barriers and tariff increases that are raising costs for businesses and disrupting established supply chains. Higher trade costs in countries raising tariffs are expected to push inflation up further, although weaker commodity prices may partially offset the impact.
Annual headline inflation in the G20 economies is collectively expected to moderate from 6.2% to 3.6% in 2025 and 3.2% in 2026, but the OECD warns inflation may prove more persistent than expected, especially in economies facing substantially higher trade costs.
For Canadian employers, the economic uncertainty creates additional challenges in planning and investment decisions. Business confidence has weakened as companies grapple with potential supply chain disruptions and higher input costs from trade barriers.
Investment remains weak across advanced economies
A persistent lack of business investment continues to hamper economic growth prospects. Investment has been declining since the global financial crisis despite historically low financing costs and strong corporate profitability, with the slowdown reflecting lasting impacts from major economic shocks.
“Investment has been in decline since the global financial crisis and that has been holding back growth,” said OECD Chief Economist Álvaro Santos Pereira. “Greater investment in the digital and knowledge-based economy is a positive development, but public investment remains stagnant and housing investment is failing to keep up with demand.”
The weak investment environment particularly affects productivity growth, creating long-term challenges for Canadian businesses competing in global markets. Housing and public investment have also slowed in many countries, contributing to deteriorating housing affordability and aging public infrastructure.
Canadian-specific challenges emerge
Canada faces unique structural challenges that could compound the global economic headwinds. The country’s productivity performance has lagged behind best-performing OECD countries for many years, a gap that current trade tensions could widen further.
“Canada’s policy framework for macroeconomic stability remains strong, with robust public finances and a well-capitalised banking sector,” said Pereira, presenting the latest OECD Economic Survey of Canada in Ottawa. “To boost long-term growth prospects in a sustainable way, more needs to be done to raise productivity and tackle climate-related risks.”
The report identifies several areas for improvement, including reducing internal trade barriers between provinces and improving mutual recognition of professional qualifications to boost labour mobility. Housing affordability has deteriorated significantly, with strong increases in both house prices and rents creating challenges for employers trying to attract and retain workers in major urban centres.
Policy recommendations focus on structural reforms
The OECD recommends governments pursue structural policy reforms to strengthen economic resilience rather than relying solely on monetary and fiscal measures. For Canada, priorities include streamlining research and development tax incentives and reducing barriers to foreign investment to reinvigorate weak investment activity.
Labour market reforms could also boost growth, particularly efforts to increase women’s participation in technical disciplines and leadership positions. Gender gaps in working hours and wages remain significant, suggesting untapped economic potential.
Central banks should remain vigilant given heightened uncertainty, the OECD warns, but policy rate reductions should continue in economies where inflation is projected to moderate and demand growth remains subdued.
The organization emphasizes that addressing trade tensions through dialogue rather than escalating barriers would provide the biggest boost to global growth prospects. A reversal of new trade barriers could significantly improve economic conditions and reduce inflationary pressures.
