Oxford Economics expects Canada to remain on the brink of recession by 2026, warning that there is little sign of relaxation based on broad weaknesses across the economy.
The outlook was shared on the company’s September office hours call, despite cooling inflation and the recent cuts to the Canadian Bank of China, economists noted that economists continue to stagnate in key sectors despite this.
Continuous uncertainty around trade, softening of the labor market and the housing market that is still looking for the bottom are marked as key risks, and the path forward is also vulnerable to policy shocks such as the federal budget this fall.
Weak growth and soften the job market
Oxford Economics says the economy will “stay on the brink of a recession in the second half of 2025,” with recent cuts by Canadian banks described as consistent with loose inflation risks and faltering growth. While the outlook “still be affected by policy shocks, including fiscal growth expected in the federal budget this fall, another reduction in October has been pointed out.
The company now expects inflation to average 2.6% next year, 3% from earlier forecasts, while the labor market will continue to feel the pressure. “We believe that the rate should drop relatively quickly to 2026 as population growth develops, but there are still some blows that will increase the unemployment rate to 7.4%,” the call noted.
Outlook points to a longer weak growth cycle. “We are not optimistic about the Canadian economy – we expect overall growth to be close to zero on the brink of the 2026 recession,” Oxford said. The high quarter-earnings are expected to slowly decrease, with a range of only one tenth of the percent.
The uncertainty of tariffs under the USMCA is also considered a risk. Until Canada gets a deal similar to the deals reached by the UK or the EU, the company notes that the uncertainty cloud will hang within the scope of tariff rates, weakening investment and related sectors.
The tentative housing rebound is overshadowed by price drops
Oxford Economics pointed out early signs of resale activity, noting that “the sales and average prices in Toronto and Vancouver have increased, and the list has increased, so overall activity has started to move.” However, the benchmark price (described as a stronger gauge) “continues to lower down.”
More tax rates are expected to bring more buyers and sellers back to market this fall, although this balance may tend to favor buyers’ market. “The event will have a pick-up service, but it will cause prices to drop into 2026,” Oxford said.
Moderate price growth may recover in 2027, but structural headwinds are expected to limit the upside. “The population shift will limit overall housing demand, as well as ongoing affordability challenges, especially in Greater Toronto and the larger Vancouver area,” Oxford noted.
In the long run, house prices are expected to rise slightly faster than inflation. “We expect the housing market to be rebalanced in the late 2030s, but over the next five to ten years, home prices will be largely real.”
Government ambitions are mitigated by structural constraints
In terms of architecture, Oxford Economics forecasts have limited momentum in the near term. “The next few months and quarters don’t look particularly good,” the company noted, only predicting relative growth by the end of 2026. Even then, the baseline is described as a low point, and any rebound is similar to a return to balance rather than a boom.
The government’s ambitions add another layer of complexity, with Ottawa’s recently announced Canadian construction housing program calling for nearly double housing output through modular and large-scale training of buildings. But Oxford warned that such goals could be surpassed. “We think the government plans to double the housing supply too much. We see that housing starts to peak within the 300,000 unit range in the second half of the decade. For example, as factors change, including aging temporary temporarys selling homes, we may face oversupply at the end of the decade if the government plans are established.”
For now, the Canadian economy appears to remain in a holding pattern – not yet fully contracted, but is still far from the path to recovery. With flux tariffs, inflation is expected to be slightly higher in the long run, and housing is still adjusting, with more impact on the market than convictions.
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Last modified: September 22, 2025
