Last week, Fitch Ratings shared its outlook for what the Canadian economy might be like in 2026.

While analysts didn’t use many positive adjectives in their forecast, they didn’t say a recession was coming.

Fitch Ratings expects Canada’s consumer outlook to soften in 2026 as a weak labor market and slower population growth weigh on demand. Analysts explained “clearer” tariff guidance and a resumption of rate cuts by the Bank of Canada (BOC) is helping mitigate pressure on the consumer sector.

Analysts then said Canada will likely avoid a recession in 2025, but GDP growth in the second half of this year and 2026 will be “weak by historical standards.”

Fitch continued, “External risks are easing as effective tariff rates prove lower than feared due to stronger Canada-U.S.-Mexico Agreement (CUSMA) compliance. However, sector-specific tariff risks and upcoming CUSMA renegotiation keep business sentiment fragile.”

Analysts reiterated the labor market remains weak, as the unemployment rate held steady at 7.1% in September, and vacancies have declined.

Fitch pointed out population growth has not slowed as much as government plans implied, keeping labor supply above demand.

“Wage growth slowed sharply this year, and business surveys indicate it will stay lackluster in 2026,” analysts said in a news release. “As a result, the outlook for consumer spending remains weak and more leveraged and lower-income borrowers are likely to come under strain.”

Fitch then noted a positive for the consumer outlook is the resumption of BOC rate cuts. Analysts recapped back-to-back cuts in September and October have lowered the policy rate to 2.25%.

Analysts expect another cut of 25 basis points early next year.

“Lower rates will help highly indebtedness Canadian households,” Fitch said.

Fitch also expects borrowing costs to remain well above pre-2020 levels.

“A significant minority of Canadian households have yet to fully adjust to higher rates, with BOC estimating that roughly one-third of mortgagors will face a payment increase at renewal by year end 2026,” analysts said. “Higher mortgage payments could lift delinquencies in lower-priority loans, such as credit cards.”