As we look back on 2025 (remember Liberation Day?), it’s clear the economic story—both in Canada and the U.S.—was anything but boring. We had uneven momentum, shifting inflation, changing expectations about work, and more geopolitics than anyone asked for.

And, as always, while economic predictions are useful, they’re also famously wrong—so we take them with a healthy grain of salt and plan thoughtfully with the information we have.

Here’s a quick look at what happened this year and what may be unfolding as we head into 2026.

Canada’s 2025 Economic Landscape~

Progress, With a Few Detours: The Canadian economy did move ahead this year just not in a perfectly straight line.  Growth & Inflation Trends

We saw better-than-expected growth early on, but different sectors told different stories:

• Energy and gold were the standouts (no surprise there).
• Manufacturing and housing continued to lag.
• Headline inflation eased to about 2.2%, although it certainly didn’t feel like it in the grocery store.

Several structural pressures stuck around:

• Rents kept climbing—up 5.2%—even with slower immigration.
• Food inflation felt noticeably higher thanks to shrinkflation (you’re not imagining the smaller packages!).
• Energy costs dropped after the rollback of the carbon tax

Labour Market Dynamics: Unemployment sat near 7%—higher, but not recession-level.

A few themes shaped the workforce:

• Youth unemployment stayed higher as expectations around work continue to shift.
• Newcomers had slower job absorption as hiring cooled.
• And yes, a bit of “affluenza”—some younger adults being more selective or slower to enter the workforce.

Currency, Markets & Sector Leaders: Despite mixed economic data, markets performed better than expected:

• The Canadian dollar strengthened a little against the USD.
• The TSX outperformed, driven by:
• High-flying gold stocks
• Solid energy
• More stable financials as rate expectations shifted

Canada vs. the U.S.: Two Similar Stories With Different Plots~

United States:  The U.S. started strong but lost momentum:

• Growth slowed into the second half of the year.
• Job creation cooled to around 64,000 per month.
• Inflation drifted back toward 3%.
• Political uncertainty and trade tensions weighed on investment.
• Market valuations softened.

Canada: Closer to home:

• Growth was softer at 1.4%.
• Inflation moved in a similar range to the U.S.
• The labour market was more fragile.
• Our commodity sectors (energy, gold, materials) helped keep things steadier than they might otherwise have been.

Overall: Canada leaned on its resource strength; the U.S. leaned into political unpredictability.

Interest Rates, Bonds & What the Yield Curve Is Telling Us: One of the clearest signals this year came from the bond market.

Yield Curve Insights: Canada’s steepened yield curve suggested:

• Short-term rates are probably done falling.
• Longer-term rates may stay higher due to persistent inflation pressures.
• Government deficits are keeping upward pressure on borrowing costs.

Bond Market Outlook: Looking ahead ~

• Canadian bond returns should look better in 2026.
• Short-term GICs remain attractive for safety-focused investors.
• Bonds will continue to be a useful buffer if equity markets wobble.

Trade Policy & Canada’s Vulnerabilities:  A recurring theme this year was Canada’s delicate positioning when the U.S. adjusts its trade policies.

Even well-intentioned policies designed to stimulate the U.S. economy can create challenges for us because:

• We are more reliant on trade.
• Our market is much smaller.
• Our supply chains are deeply intertwined.
• We simply have less bargaining power.

The good news: Canada is actively pursuing more partnerships with other countries, which may help reduce some of this dependency over time.

Global Markets, Volatility & What Might Shape 2026 Returns ~

2025 reminded us that markets are global whether we like it or not. Market Valuations & Volatility

This year we saw:

• High geopolitical volatility
• Reasonable valuations here in Canada
• Lower valuations in the U.S. as uncertainty grew
• Uneven performance in emerging markets

And yes—gold continued to shine as a hedge against both currency risk and global instability.

Key Global Flashpoints: Notable risks for 2026 include:

• Continued tensions in the Middle East
• Concerns about extremist influences in Western institutions
• A slow but noticeable erosion of traditional geopolitical stability

These factors mean volatility isn’t going anywhere—but they also tend to create opportunities for long-term investors.

2026 Outlook: Canada & the United States: Canada: Slow but Steady - Canada’s 2026 forecast points to:

• Growth between 1–1.5%
• Easing rent inflation as immigration normalizes
• A possible Bank of Canada rate cut in the second half of the year
• Continued strength in energy and mining
• A gently stronger Canadian dollar

United States:  More Clouds on the Horizon the U.S. may face:

• Higher recession risk
• Slowing job creation
• Sticky inflation around 2.5–3%
• Elevated political volatility heading into midterms
• Certain sectors still benefiting from corporate tax incentives

Expected Market Returns for 2026:  Our working estimates:

• U.S. equities: 4–7%
• Canadian equities: 6–8%
• Global equities: 6–10%

These reflect a world that’s normalizing but still full of political surprises.

What This Means for Investors: Despite the headlines, 2026 has the potential to be a year of resilient opportunity:

• Valuations are more reasonable than a year ago.
• Bonds are finally positioned to contribute again.
• Canada’s resource strength remains a stabilizing force.
• Diversification—geographic and sector—is still the strongest strategy

We expect moderate returns, gradually easing inflation, and selective opportunities, especially for long-term investors who stay invested and stay disciplined.

If you’d like a personalized discussion about how any of this affects your retirement planning or investment strategy, I’m always happy to chat.

Source: Bloomberg