Searching for the Private Sector’s Lost Mojo
Highlights
Global GDP growth is expected to moderate to around 3% per annum over 2026-27. The outlook is uncertain, however, as countries adjust to the highest average U.S. tariff rate since the 1930s. Risks to the global outlook are balanced.
Canadian GDP growth is expected to slow to a little over 1% in 2026, before tepidly improving in 2027. Private sector activity is broadly weak. Most troublingly, business investment per capita is tracking about 20% lower than a decade ago.
Canada’s economic troubles did not begin with President Trump’s inauguration on January 20, 2025. A trifecta of booms in government spending, housing finance, and population have barely lifted Canadian output per person over the past decade. Output per person was less than 2% higher in 2024 than in 2014 – whereas in the U.S. it was 20% higher and 15% higher across OECD countries on average.
B.C. GDP growth is expected to remain subdued across 2026-27, with growth below 2% compared to a long-term average of around 2.5% per annum. Risks to the outlook are balanced.
B.C.’s economy is weighed down by broad-based sluggishness in private sector activity and weaker external demand. Although public sector spending is stimulatory – B.C. is running the largest provincial deficit in Canada as a share of its economy – it is not sustainable. Also, the precedent-setting Cowichan decision in August may dampen investment as it introduces uncertainty about the legal status of fee simple title (private property) in B.C. where and if Aboriginal title is declared.
Federal and provincial governments are betting on specific resource projects to kickstart economic growth and are committing to “concierge” or “fast track” them through their own permitting processes. Even so, most of the large-scale projects await final investment decisions, and construction would still be some years away.
In the interim, federal and provincial policymakers should continue to rethink the tax and regulatory settings facing the broad private sector. The recent Canada Mutual Recognition Agreement (CMRA) to reduce impediments to cross-Canada trade in goods is a step in the right direction.