Fitch Ratings Inc. (Fitch) released a report on Canada’s economic outlook, offering a cautiously brighter outlook after a rocky start to the year. Canada’s economy struggled, falling into a technical recession in the first quarter of 2026. However, recent data has shown it began to improve in the second quarter. Still, the outlook is uncertain amid ongoing geopolitical tensions, higher energy prices and fresh trade tensions with the US.

• The downturn from earlier this year may be short-lived. Fitch said first-quarter 2026 weakness, driven by weaker investment and a surge in imports, is giving way to a labour market that’s improving after a rebound in employment and wages in the second quarter.
• Consumers are still spending, just more carefully. Spending rose by 0.3% over the first quarter. Fitch expects households to keep favouring essentials while fuel prices remain elevated.
• Trade with the US remains a wildcard. The Canada-United States-Mexico Agreement still protects most Canadian exports, but the agreement is now subject to annual reviews. The newly announced 50% tariffs by the US on some Canadian goods add to the burden on Canada’s economy.
• Fuel prices are another risk to monitor as elevated prices could weigh on the economy directly and through supply chains. Fitch hasn’t yet seen the kind of broader inflation pressure that would push the Bank of Canada toward interest rate hikes.
• Consumer credit is showing some strain, according to Fitch. The ratings agency kept its deteriorating outlook for Canadian credit card and auto loan asset-backed securities, expecting delinquencies to rise modestly.

Fitch isn’t sounding an alarm on the Canadian economic outlook, but it isn’t giving an all-clear either. The economic recovery looks real, according to Fitch, but it’s unfolding alongside real risks, including tariffs, fuel prices and stretched household credit, which could weigh on Canadian economic activity. Despite all of the risks, Canada’s economy continues to demonstrate its relative resiliency.

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