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Forklift driver in yellow hard hat operates red forklift in lumber yard amid stacks of wooden boards.
  1. TradeInsights
  2. Article

Uncertainty to overshadow the North American economies this year

February 03, 2026 Manage Risk

Author details

Prince Owusu

Senior Economist, Economic and Political Intelligence Centre (EPIC)

In this article:

  • United States: Slower growth amid tariffs and housing challenges
  • Canada: Navigating tariffs while building for future growth
  • Mexico: Policy risks and tariff pressures

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Economic anxiety surged to levels rarely seen in 2025. While tariff announcements have slowed, trade tension between the United States and its major trading partners remain elevated. This uncertainty disrupted business and household spending plans, leading to a slowdown in economic activity towards late last year.

Hiring eased across the continent and is expected to remain subdued in 2026. Businesses are cautious about making major investments until the Canada-United States-Mexico Agreement (CUSMA) review—scheduled for this summer—is finalized.

On the positive side, inflationary pressures are easing across North America. The Bank of Canada has lowered its policy rate to the lower end of its neutral band (a range that neither stimulates nor restrains the economy), while the U.S. Federal Reserve (Fed) and Mexico’s central Banxico are expected to cut interest rates further this year.

Still, everyday essentials, including coffee and beef, remain costly, straining lower-income households. Tariff-related uncertainty adds to financial stress, especially for families already burdened with high debt. Housing affordability is another major challenge, with sky-high prices and elevated mortgage rates slowing new home construction—particularly in the U.S.

Want the bigger picture?

North America’s outlook is just one piece of the puzzle. Explore EDC Economics’ latest Global Economic Outlook for insights on global growth, trade tensions, interest rates and currency trends—critical intelligence for Canadian exporters navigating uncertainty.

You should also check out

A wind-bent tree, nearly breaking, yet standing strong and resilient.
Guide January 21, 2026
Global Economic Outlook—Winter 2026

With growing risks, Canadian companies face new challenges. EDC’s Global Economic Outlook offers insights to help you make better business decisions.

U.S. economic outlook 2026: Slower growth amid tariffs and housing challenges

Affordability remains a chief concern for many American households. Slowing job gains, rising unemployment and weak consumer confidence are curbing discretionary spending. (See chart). Non-farm payrolls averaged just 49,000 per month in 2025—down nearly two-thirds from 2024. The jobless rate rose to 4.4% in December. 

Job gains

12-months moving average, in thousands

U.S. job gains slowed sharply, averaging 49,000 per month in 2025, with rising unemployment weighing on growth.

Sources: Haver Analytics, EDC Economics 

Housing affordability is worsening as mortgage rates, home prices and rents remain elevated. Soaring insurance (+7% in November) and electricity costs (+6.9%) add to household strain. Consumers are taking on more debt, which will likely constrain spending in 2026. In our assessment, mortgage rates and housing prices are unlikely to return to pre-pandemic levels.

Tariffs on Canadian lumber and wood products—up 30%-50%—have added roughly US$9,000 to the average U.S. home price, stifling new construction. Immigration crackdowns are also reducing the supply of skilled workers, pushing wages higher.

Business investment is slowing as uncertainty persists. Clean energy projects worth $32 billion were cancelled in 2025, impacting an estimated 40,000 jobs, and offshore wind leases were paused. While new projects are in the pipeline, clarity on tariffs and policy is needed before shovels hit the ground. Investment growth in 2026 is expected to be half the pace of the last five years.

With inflation within the Fed’s target range and labour market weakening, the Fed is expected to cut rates further by another 50 basis points this year to stimulate demand. Real gross domestic product (GDP) growth is forecast to slow from an average of 3.6% (2021-2024) to about 2% (2025-2027). 

Canada’s economic forecast: Navigating tariffs while building for future growth

Canada enters 2026 facing significant tariff headwinds. The U.S. imposed steep duties—50% tariff on steel and aluminum, 10% on energy and potash, and 25% on other non-CUSMA-compliant exports. China followed with punitive tariffs, including 75.8% anti-dumping duties on Canadian canola seed, 100% tariff on canola oil, meal and pea and a 25% tariff on seafood and pork, slashing Canadian export volumes by double digits last fall. While the plunge in Canadian exports has stabilized, the momentum heading into this year is tepid.

To counter these challenges, the federal government launched the One Canadian Economy strategy to remove interprovincial trade barriers and accelerate infrastructure development. The removal of interprovincial trade barriers could unlock $110 billion to $200 billion in annual growth.

Fiscal measures in the federal budget should help Canada avoid recession, with GDP expected to grow 1.2% in 2026. As the CUSMA review concludes this summer and the new strategy gains traction, growth could accelerate to 2.5% next year (See chart).

The Canadian dollar has strengthened amid tariff-driven shifts in investor confidence, rising more than 5% since March 2025 and projected to reach US$0.72 by year-end. 

Canada’s economic performance set to strengthen next year

Real GDP growth, year-over-year % change

Budget measures lift GDP growth to 1.2% in 2026; after the CUSMA review, growth could reach 2.5% in 2027.

Sources: Haver Analytics, EDC Economics 

Mexico’s economy in 2026: Policy risks and tariff pressures

Mexico’s economy continues to underperform due to restrictive policies and state control over key sectors, like energy and critical minerals. Constitutional reforms—such as electing judges through countrywide elections and eliminating autonomous regulators—have weakened institutions and deterred foreign direct investment (FDI). Several announced FDIs have been cancelled or put on hold.

Tariffs are further dampening prospects for businesses looking to set up operations in Mexico. Honda shifted its planned Civic Hybrid production from Mexico to Indiana after the U.S. imposed a 15% tariff on vehicles and parts and 50% tariffs on steel and aluminum. With more than 80% of Mexico’s exports going to the U.S., these measures pose a serious challenge.

GDP growth is forecast at just 1.3% in 2026, rising to 2% next year after the CUSMA review—still below potential (See chart). Banxico will cut rates this year to boost domestic demand, but this will weigh on the peso, which is expected to average MX$20 this year and MX$20.86 in 2027.

Mexico faces decades of lost opportunities without return to market reforms

Real GDP, millions of 2019 peso

Mexico’s real GDP trails past trends, with forecasts under current policy below 2012–18 growth and catchup paths.

Sources: Haver Analytics, EDC Economics 

How EDC can help Canadian exporters

EDC offers practical solutions to help Canadian businesses navigate uncertainty—from market intelligence to financing and risk management tools. Our experts provide guidance and connections to help exporters adapt, compete and grow in a complex global environment.

Here’s how we can support you:

  • U.S. market intelligence: Access insights on the U.S. business environment.
  • EDC’s Trade Impact Program (TIP): Launched in March 2025 as part of the Government of Canada’s $6.5-billion support package, TIP will facilitate an additional $5 billion until March 2027 for eligible companies.
  • Export Help Hub: Connect with EDC trade advisors for market strategies, regulations and customs guidance.
  • Business Connections Program: Promote your export capabilities to international buyers.
  • Risk management tools: Explore financial solutions and resources, including the Country Risk Quarterly.

New to EDC? Take a quick assessment to see how we can support your business.

Already an EDC customer? Stay informed on U.S. market conditions and Canada-U.S. trade issues by contacting your EDC relationship manager or calling 1-800-229-0575

     

Related topics

   

Written by

Prince Owusu headshot, EDC

Prince Owusu

Senior Economist, Economic and Political Intelligence Centre (EPIC)

Prince Owusu - LinkedIn

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