North American economic outlook 2026: Investment drives growth amid tariff uncertainty

The economic outlook for North America is being reshaped by three forces: The Canada-United States-Mexico Agreement (CUSMA) review, higher energy prices linked to the Middle East conflict and a surge in investment tied to artificial intelligence (AI) and advanced manufacturing. Together, they’re influencing trade flows, business investment and export opportunities across the continent.

The United States continues to lead regional growth as companies pour billions into data centres, automation and advanced manufacturing. Canada is expected to recover gradually after a weak start to the year, supported by exports, infrastructure projects and resource investment. Mexico faces ongoing policy and investment challenges, but should benefit from easing inflation and strengthening domestic demand.

Export Development Canada’s (EDC) latest Global Economic Outlook finds that while growth across North America remains positive, exporters face a more complex operating environment as rising energy costs, trade uncertainty and shifting investment patterns reshape the region’s economic landscape.

For Canadian exporters, the key question isn’t whether growth continues—it’s where new opportunities are emerging and how shifting trade and investment patterns will affect North American supply chains.

According to David Weiner, EDC’s regional vice-president for the United States, opportunities in the U.S. market remain strong, but exporters need to be prepared for a more volatile environment.

“The United States continues to offer significant growth opportunities for Canadian exporters. It remains our closest export market, the world’s largest economy and a market with deeply integrated supply chains and longstanding commercial ties to Canada. At the same time, exporters need to approach the U.S. market with their eyes wide open. It’s no longer the highly predictable market many businesses have grown accustomed to. Companies must stay alert to evolving trade policies, remain flexible in their planning and be prepared to adapt as conditions change. Canadian businesses have repeatedly demonstrated their resilience and adaptability.”

The U.S. economy is expected to remain the strongest performer in North America, with growth holding near 2% in 2026 and strengthening modestly to 2.1% in 2027. While consumer confidence remains subdued, resilient labour-market conditions, AI-driven equity gains and spending by higher-income households continue to support consumption. EDC Economics estimates that every additional dollar of household wealth generates about three cents of consumer spending. Recent gains in equity markets are therefore helping support household spending and overall economic activity.

However, investment and consumption have become the primary engines of growth. Spending on AI infrastructure, data centres, advanced manufacturing, semiconductors, automation technologies and digital networks is driving a new investment cycle. As firms seek to improve productivity, enhance resilience and expand capacity, business investment is expected to remain a key source of economic momentum.

Figure 1: U.S. growth is led by investment and consumption

Seasonally adjusted at annual rate, share of real GDP by expenditure component (%), percentage

  
Source: Haver Analytics

For exporters, this investment boom is creating opportunities across North American supply chains. Demand for machinery, electrical equipment, industrial components, construction materials, energy products, critical minerals and technology-related inputs is expected to remain strong as businesses expand production capacity and modernize operations.

The ongoing CUSMA review process, geopolitical tensions and energy-market volatility may influence business confidence and investment decisions in non-technology-related sectors. Nevertheless, strong investment in technology-related sectors, resilient consumer demand and potential productivity gains should continue to support steady U.S. growth over the forecast horizon.

The Middle East conflict remains a key risk as inflation is likely to remain above the Federal Reserve’s 2% policy goal until late 2027. With inflation becoming entrenched, the Fed is likely to raise its policy rate by 25 basis points by the end of this year to help keep inflation under control.

Although economic activity contracted slightly in the first quarter of 2026, recent data for consumption, investment and exports point to a rebound in the second quarter that will help pull the overall economy from the doldrums this year. Real gross domestic product (GDP) is expected to expand modestly by 1% before strengthening to 2.1% in 2027 and 2.2% in 2028.

Domestic demand is expected to remain subdued in the near term. Although core inflation remains contained, higher energy costs linked to the Middle East conflict are placing pressure on households and businesses and weighing on consumer confidence. At the same time, uncertainty surrounding the ongoing CUSMA review is causing many firms to delay major investment decisions.

Despite these headwinds, Canada’s export sector has remained resilient. Higher gold and energy prices, combined with improved access to some international markets, have helped support trade activities. 

Figure 2: Canada’s goods exports: Precious metals (mainly gold) and energy are key drivers

Source: Haver Analytics/EDC Economics

For exporters, opportunities are likely to be concentrated in energy, critical minerals, infrastructure-related industries and sectors tied to U.S. investment demand. Trade policy uncertainty remains elevated as the United States continues to impose additional tariffs on Canadian goods. The latest measure is a proposed 50% tariff on Canadian alcohol, dairy products and certain auto parts that aren’t already subject to sector-specific tariffs. If implemented as announced, the measures would add to the pressure facing Canadian exporters. However, most Canadian goods are expected to continue benefiting from preferential market access under CUSMA.

Business investment is expected to improve gradually as several large energy, resource and trade-enabling infrastructure projects advance next year. Government spending on defence and infrastructure should provide additional support to growth, while labour-market conditions are expected to improve gradually, helping strengthen household spending.

With inflation risks balanced against lingering economic slack, the Bank of Canada is expected to maintain a cautious policy stance while monitoring both economic growth and evolving inflation pressures. That will leave the loonie lingering around US$0.73 for the balance of this year and next year.

Mexico’s economy is expected to recover gradually following a weaker-than-expected start to 2026. Growth is projected at 0.9% in 2026, before strengthening to 2.1% in both 2027 and 2028. Policy uncertainty and subdued investment are expected to restrain activity in the near term.

Figure 3: Mexico’s inflation eases as monetary conditions gradually improve

Consumer Price Index: Seasonally adjusted in July 16-31, 2018=100, interest rate: percentage, end of period

Source: Haver Analytics/EDC Economics

Consumer spending should provide some support to growth, as government-mandated real wages remain strong and easing inflation provides impetus for the Central Bank of Mexico to ease its policy rate.

For exporters, manufacturing remains a relatively bright spot. Mexico’s deep integration within North American supply chains continues to support sectors such as electronics and industrial machinery. However, tariffs, fragile business sentiment and uncertainty surrounding the CUSMA review are expected to temper export growth and business expansion plans.

Business investment is likely to remain subdued in the near term, weighed down by regulatory, judicial and trade-policy uncertainty. If uncertainty eases and Mexico and the U.S. can resolve relevant CUSMA irritants, investment activity should strengthen, supporting a modest recovery.

While the CUSMA review remains an important consideration for businesses, evolving U.S. tariff measures have become an increasingly significant source of uncertainty for North American exporters. Together, these developments are influencing investment decisions, supply chain strategies and long-term business planning across the region. However, CUSMA remains in force through 2036, helping preserve preferential market access across North America.

At the same time, volatility in the energy markets linked to the Middle East conflict continues to pose upside risks to inflation and business costs.

Despite those challenges, North America’s growth outlook remains supported by investment. Spending on AI, advanced manufacturing and infrastructure is creating new opportunities across integrated supply chains, particularly for exporters serving the U.S. market.

Trade uncertainty, shifting supply chains and changing market conditions create both risks and opportunities for Canadian exporters. EDC provides market intelligence, financing solutions and expert advice to help businesses expand with confidence.

Looking for practical guidance on doing business in today’s North American trade environment? Join EDC’s upcoming webinar, Managing trade risk in the U.S. and Mexico, on Aug. 13, to hear expert insights on tariffs, customs requirements, trade compliance and strategies to help protect your business as market conditions evolve.

EDC offers a range of tools, programs and services to help Canadian businesses manage risk, seize opportunities and grow across North America:

• Understand market opportunities in the United States: Access EDC’s U.S. market intelligence, economic analysis and sector insights to identify opportunities in the world’s largest economy.
• Navigate trade uncertainty with EDC’s Trade Impact Program: Launched in 2025, EDC’s Trade Impact Program (TIP) helps eligible Canadian companies access additional financing and support as they adapt to changing trade conditions.
• Get export advice through the Export Help Hub: Connect with EDC advisors for guidance on market-entry strategies, customs requirements and export regulations. 
• Build international business connections: Promote your capabilities to qualified buyers and partners through EDC’s Business Connections Program.
• Manage export risks with confidence: Explore EDC’s financing, insurance and risk management solutions, including insights from the Country Risk Quarterly.

New to EDC? Take a quick assessment discover the products and services that fit your business.

Already an EDC customer? Contact your EDC relationship manager or call 1-800-229-0575 for support navigating North American market conditions.