We should all work and hope for new trade relationships, new business lines and lots of innovation to bring seen and unforeseen solutions. But in the here and now, Canada is in a complacency-earned rough patch. Eyes wide open.
Canada’s private-sector activity remained soft in January, with the S&P Global Canada Composite PMI coming in at 46.4, slightly below December’s 46.7. Readings below 50 indicate contraction, and this marks the third consecutive month of subdued economic momentum. While the decline from December was modest, the data suggest ongoing weakness in business activity (ongoing cutbacks) and demand (weak new orders, weakness in interest-sensitive sectors such as construction, real estate and consumer services).
Manufacturing stabilized in January, while services fell to 45.8 from 46.5, with the latter the main driver of the downturn. New business volumes declined for a fourteenth consecutive month and continued to weigh on output. Backlogs of work decreased markedly again as firms were easily able to keep on top of workloads.
On the price front, input cost inflation softened to its softest rise since November 2024, while output charge inflation remained solid and little changed compared with December.
Employment contracted for a fifth successive month, as firms pared staff or chose not to replace those who left. Business confidence softened since December and remained well below trend.
Canada’s full-time job creation flattened over the past three months, along with a contracting workweek, and an unemployment rate at 6.8% in December, up from 6.5% in November. The Bank of Canada’s (BoC’s) January Monetary Policy Report (MPR) affirmed a darkening outlook in 2026:
“US trade policy has weakened demand for Canadian exports and led to heightened uncertainty. As a result, some businesses have postponed expansion plans. This is hampering the economy’s ability to grow…GDP growth remains modest at 1.1% in 2026 and 1.5% in 2027…While US tariffs on Canada are limited to specific sectors, such as steel and aluminum, their impact on exports is being felt more broadly. Uncertainty about trade policy is prompting some US customers to delay orders. As well, many Canadian businesses are postponing expansions, and some are approaching new US contracts with caution. Additionally, establishing new trade relationships with customers and suppliers outside the United States will be a lengthy process…Weak demand and trade policy uncertainty continue to weigh on investment plans for both exporting and non-exporting businesses.”
At the same time, talk of the Bank of Canada (BoC) holding the overnight rate steady while the US is expected to ease further, along with parabolic moves in metals’ prices, caused the loonie to appreciate 3% against the US dollar in the last three months. The question is how long can this strength last.
A stronger loonie is disinflationary for import prices, but has little effect on the shelter and services inflation, which are stressing Canadian households. Meanwhile, trade and labour weakness, along with ongoing strife in the deflating property market, increase the likelihood that the BoC will return to lowering the overnight rate in 2026.
David Rosenberg touches on some key trends in the segment below.
David Rosenberg, founder of Rosenberg Research, joins BNN Bloomberg to discuss Canada’s labour market and real GDP. Here is a direct video link.